The fear expressed by institutional analysts at the start of the year that 2024 will see some degree of volatility on the iron ore price front seems to be coming true. On April 1, the beginning of the second fiscal quarter, iron ore prices fell to a ten-month low. Costs for the raw steel-making material dipped by 3.9% to U.S. $96.25 a ton on the Singapore Exchange in early trade before recovering. In the last quarter, ore prices had a rough ride as investors tried to combat the fallout from weaker Chinese real estate sector demand.
Some experts said that the sudden drop on Monday stemmed from a warning issued last week by The China Iron and Steel Association (CISA), which stated that the property downturn and a weak infrastructure were delaying steel demand recovery. For March 2024, the steel industry’s purchasing managers index was down to 44.2, the lowest since May last year.
In Asian markets, the second quarter commenced with turbulent fluctuations in iron ore prices. According to this report, iron ore prices experienced significant declines followed by rapid recoveries amidst holiday-affected trading. A call from China’s steel industry association for producers to reduce production, coupled with iron ore stocks reaching a two-year high at 45 major Chinese ports, prompted the instability.
During the Easter break, the price of 62% Fe fines on the SGX iron ore platform plummeted by over 5% from U.S. $101.04 a ton to a low of U.S. $95.60 a ton at the open. However, the price gradually rebounded after hitting a low of U.S. $95.40 a ton. Eventually, it managed to crawl back up to U.S. $101.65 a ton.
What’s Behind the Iron Ore Price Drop?
According to Bloomberg, iron ore prices falling to around U.S. $100 a ton marks a significant shift in China’s commodities markets. Earlier this year, prices peaked at U.S. $143.50 a ton, the highest since June 2022. Prices have since stabilized at U.S. $100.85 a ton after experiencing a 30% decline from the January high.
A report by Reuters said that where iron ore price fundamentals were concerned, there were indications that China’s robust demand for imported iron ore during Jan and Feb 2024 moderated in March. This, in turn, led to a notable increase in port inventories. China is the primary purchaser of over 70% of the world’s total iron ore via ports. Current data compiled by commodity analysts at Kpler predict the country will import approximately 99.62 million tons of the crucial raw material in March.
However, there’s a possibility that imports might fall short of the Kpler estimate. For instance, LSEG data indicates that just 91.4 million tons of ore arrived at Chinese ports in March, marking the lowest figure since April last year. Meanwhile, official customs data revealed imports for the first two months of 2024 totaling 209.45 million tons. This reflects an 8.1% increase compared to the same period in 2023, with a daily average of 3.49 million tons.
Could Chinese Steel Mills Help Market Stability?
CISA continues to emphasize the importance of steel mills taking proactive measures to balance supply and demand within the market. For example, the organization recommended that Chinese steelmakers align their production schedules with steel sales and business performance while prioritizing high-quality and efficient development. It also urged major steelmakers to lead efforts to reduce ineffective supply to facilitate the smooth operation of the domestic steel market.
Furthermore, CISA advised Chinese steel mills to remain vigilant about market fluctuations and enhance management of their sales channels to prevent instances of low-price dumping and unhealthy competition.
Regarding the current state of China’s steel consumption, CISA acknowledged that it had peaked and highlighted the evolving structure of steel demand amid efforts toward high-quality development. It proposed that Chinese steel producers carefully monitor and analyze the market, adjusting production pace accordingly. Additionally, it urged the prompt reduction of steel inventories to achieve a dynamic balance between supply and demand.
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