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                China iron ore market is in the best state of supply and demand

                Date:Nov 6,2020

                 

                According to Reuters reports, iron ore seems to have entered a state of similar comfort and balance. China’s stimulus spending has kept demand high, but Australia and Brazil’s supply is sufficient to maintain market balance.

                 

                China continues to import iron ore at a strong pace. Refinitiv data estimates that China has unloaded 101.6 million tons in October. China's seaborne iron ore purchases account for about two-thirds of the world's total.

                 

                Refinitiv's ship tracking and port data are not completely consistent with official customs data, because there is a slight difference in when the cargo is assessed as discharged.

                 

                Official figures also include small amounts of iron ore shipped overland from neighboring countries.

                 

                Nevertheless, China’s iron ore imports in October may still remain above 100 million tons for the fifth consecutive month, and are expected to hit a record high throughout the year.

                 

                The output of China's steel industry in 2020 may exceed 1 billion tons. This will be the first time that this level has been exceeded, as stimulus spending keeps demand from the infrastructure and construction industries high.

                 

                After the second-largest exporter Brazil and the third-ranked South Africa were affected by the coronavirus, the supply side has basically returned to normal.

                 

                Although Australia, the largest exporter, managed to control the epidemic to a large extent and maintain production, in the months around the middle of this year, supply appeared to be insufficient, leading to price increases.

                 

                However, supply seems to be recovering, and Refinitiv data shows that Brazil’s October shipments were approximately 31.5 million tons.

                 

                This is down from 34.2 million tons in September and 33.3 million tons in August, but it is still significantly higher than the level in the first quarter, which is closer to the monthly average of 22 million tons.

                 

                Refinitiv data show that Australia exported about 78 million tons in October, up from 74.5 million tons in September, and the highest month since June 82.8 million tons.

                 

                Moderate price

                 

                Brazil's supply commodity price reporting agency, Argus, assessed that the recovery of Brazilian supplies has caused the spot price of iron ore to fall from its high during the year, closing at $119.50 per ton on Monday.

                 

                This is lower than the peak of US$130.55 per ton on September 3, 2020, but still about 50% higher than the low of US$79.60 on March 23, which was set at the height of China’s blockade.

                 

                The question facing the market is whether the return of the balance of supply and demand is sufficient to maintain the current price level.

                 

                In recent years, prices above US$100 per ton indicate that demand precedes supply to a certain extent, or that market sentiment is bullish.

                 

                It can be said that China's demand is still strong, but again, it is difficult to see demand rise further at the current level.

                 

                However, market sentiment remains strong, and the latest China Purchasing Managers Index data supports the view that China, the world’s second largest economy, has recovered strongly from the epidemic.

                 

                As for the bearish factors, and the steady increase in Chinese port inventory in recent months, it may indicate that prices may fall.

                 

                According to data from the consulting company SteelHome, in the week ending October 30, SH-TOT-IRONINV's inventory increased from 127.8 million tons in the previous week to 128.9 million tons, which was the lowest stock of 107.8 million tons since the week of June 12 this year. It is about 19.6% higher.

                 

                In addition, there is also a question mark as to how long China will fully open the lead of stimulus measures. Any reversal of economic support may cause people to question the sustainability of current iron ore prices.

                TypeInfo: Trade news

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