Iron ore international prices are running at high levels

The international price of iron ore remains high. The recent trading price rose to about $120 per ton, about 10% higher than in the summer. China’s iron ore imports remain high, supporting the market. The sense of slowdown in China’s economy has increased due to the downturn in the real estate market and other reasons, but there seems to be a situation where steel production cannot be reduced in order to maintain the pillar industries.

The spot price of iron ore (for China, CFR = including freight) was $123 per ton at the end of Oct. It hovered in the range of $115 to $125 in Sept. to Oct., up from the range of $110 to $115 in August.

Iron ore futures prices listed on the Singapore Exchange (SGX) stood at more than $123 per ton as of November 1, and have consistently exceeded $115 since September.

In terms of iron ore, 70% of the sea trade volume is sold to China, China’s demand trends have a significant impact on the price.

The recovery of production activities after the end of the epidemic control in China is still sluggish. Construction demand was also in the doldrums due to deteriorating real estate conditions. The spot price of iron ore hovered around $95-$115 from May to August, a sluggish performance due to low steel purchases.

The upward trend of iron ore prices has strengthened since September. There is a growing view that the Chinese government will introduce a large-scale economic stimulus program, which pushed up the iron ore market.

However, the current policy is only to relax housing loan restrictions in major cities and other less drastic measures. Expectations for large infrastructure investments are also cooling. However, iron ore prices have not fallen and remain high.

China’s General Administration of Customs announced that iron ore imports from January to September totaled 876.65 million tons, an increase of 6.7% over the same period last year. In particular, it reached 106.42 million tons in August, an increase of 10.6% over the previous year. More than 100 million tons in September as well.

China’s crude steel production in September fell 5.6% year-on-year to 82.1 million tons, after three months again fell below the previous year’s actual output. Electric furnace steelmaking, which uses scrap as a raw material, appears to be trending toward stopping equipment and lowering its start-up rate, but blast furnace steelmaking has not shown any movement toward a significant reduction in production. Statistics from Chinese research firm Mysteel show that more than 90% of China’s domestic blast furnace facilities were operating at an average rate of 92% in mid-October.

China seems to have privately given guidance to companies since the summer of 2023 in order to maintain crude steel production in 2023 at the same level as the previous year. The view that the demand for iron ore will not fall sharply in 2023 compared to 2021 and 2022, when the policy of scaling down production was clearly stated, has become the support for the market. Behind the policy of production reduction in 2021 and 2022, the factor of environmental countermeasures such as greenhouse gas reduction is also prominent. Japanese steel trading houses reveal that the Chinese government’s policy stance now places more emphasis on the economy than on environmental protection. Due to the worsening concerns of economic slowdown, steel as a pillar industry is difficult to propose production cuts.

However, signs of steel surplus within China are strengthening due to weak demand. Hot rolled coil is trading at nearly 10% lower in China domestically compared to the summer. China’s surplus steel exports to Asia are becoming a pulling pressure on the market everywhere.

During the winter months, construction work in China will also decrease and steel demand will fall further. There is also the possibility of causing iron ore prices to fall if autonomous production cuts by steel companies expand.