Iron ore prices have plunged back and forth since late July, when they rose sharply on the news of a suspension of bidding for railway repairs. Then, as Rio Tinto denied the impact on supply, the rise was halted and gradually eased. Nevertheless, investors should not be overly pessimistic on the whole, given the small increase in supply in the second half of the four major mines, except Vale, and the possibility that structural demand for medium and high grade iron ore from steel mills may continue to improve as a result of production restrictions.
Inventory continues to decline
According to information previously disclosed by major mines, the expansion pressure of iron ore supply end will be weakened during the year. Since the other three mines except Vale had a relatively small increase in supply during the year, the total output of the four mines in the third quarter increased at a year-on-year rate or dropped to around 5.5% and 2.5%. For the only product in the steel industry chain that lacks support for supply-side reforms, slowing supply growth clearly means less price pressure.
Indeed, harbor iron ore stocks, which hit record highs at the beginning of the year, peaked after March with the end of the previous heating season and began to contract more rapidly in the near future - now below 150 million tons, the lowest level since late January.
Strong support still exists
Inventory in the downstream market has not been significantly accumulated in the traditional off-season. The latest data show that the inventory of finished products of building materials steel mills increased by only 15.8 million tons to 2.125 million tons from the end of July, which is about 100,000 tons lower than that of the same period last year; the social stock of steel products increased by 130,000 tons to 1,0418,000 tons from the end of July, 570,000 tons higher than that of the same period last year. Meanwhile, the inventory of finished products at key steel plants in early August, announced by the China Steel Association, decreased by 280,000 tons to 11.94 million tons compared with the same period last year. The traditional peak demand season, which is approaching gradually in the terminal market, will continue to keep the steel market relatively tight, which will also continue to keep the steel mills operating at high loads, thereby maintaining the consumption of ore by the mills - and possibly even boosting the structural demand for medium and high grade iron ore in the next heating season.
On the demand side, given that steel mills around the country have been under a variety of environmental checks since this year, this may mean that there is not much room to compress demand for iron ore during the production season. According to the production situation of sample blast furnaces, the operating rate of 247 steel plants in the latest phase dropped by 11.27% to 78.86% year-on-year, and the productivity utilization rate decreased by 8.37% to 79.24%; the operating rate of 139 steel plants dropped by 10.77% to 66.44% year-on-year, 4.56% higher than the lowest level since last year, and the productivity utilization rate decreased by 8.33% to 76.41% year-on-year. The productivity utilization rate of 139 steel plants after excluding backward production capacity decreased by 8.26% to 82.91% compared with the same period last year, 5.7% higher than the lowest level since last year. If this year's heating season limit does not lead to a much lower utilization of steel industry capacity than the same period last year, it means there is less room for steel mills to continue contracting demand for iron ore from current levels. In other words, this year's normalized environmental inspections and production restrictions will weaken the negative impact of the upcoming heating season policy on overall demand for iron ore.
Limited production has limited influence.
To sum up, although the demand for iron ore is constrained by the downstream supply-side reform and environmental restrictions, the downstream blast furnace operation is already at a low level, which may weaken the negative impact of future heating season restrictions on the overall demand for iron ore, and further enhance the structural properties of steel mills for medium and high grade iron ore. Demand. Consequently, overall, iron ore price support is expected to gradually strengthen as supply pressures gradually ease and demand contraction space is limited. It is suggested to build a multi-iron ore 1901 contract in three to four times, with an entry point of 470-480 yuan / ton, a stop loss of 450 yuan / ton and a first target of 520 yuan / ton.
