China’s output data has put some pep in the step of iron ore prices as low inventory levels around the world could potentially contribute to a supply dearth.
The most-traded iron ore contract by volume for September delivery was up 5.5% to $195.26 per tonne at one point on the Dalian Commodity Exchange. As construction ramps up on projects around the world, steel demand is likely to keep rising over the coming months.
The demand could push iron ore prices higher for the foreseeable future until a more balanced supply is established and inventories are refilled. Analysts with Huatai Future wrote in a note that, “Steel consumption is still at seasonal peak in the short term…mills are actively producing, driven by high profits, which support raw materials.”
China’s reopening from the pandemic has been a significant driver of both supply and demand, and the country’s output hit a record high even though the government has pledged to curb annual production in a bid to reduce pollution and keep costs high for raw materials. The global steel output continues to inch up, rising to 97.9 million tonnes. This crossed month and daily run-rate records.
Analysts at Morgan Stanley agree that China will continue to drive the market in the short term, writing, “As China’s steel production still continues to expand, its steel margins remain elevated and seaborne iron ore supply remains constrained, we think that the iron ore price can stay around the current level through 2Q, but is likely to remain highly volatile.”
5% daily moves may not be a regular occurrence, but risks loom as demand from Latin America remains low, and supply from Brazil could pick up in the coming months to supply local needs. Global iron production growth is expected to accelerate this year with Brazil driving much of that growth.