Falling nearly 26% in one month, what is the reason for iron ore's cooling?

Iron ore futures have been falling since July 16, from a high of 1132.5 yuan per ton to around 830 yuan per ton, down 26% in a month.Iron ore futures fell more than 2 percent to close at 823.5 yuan a ton in overnight trading, the lowest since November 2020.

"The recent iron ore price is weak mainly due to the deterioration of iron ore fundamentals."Yao Gang, senior black analyst of Jinxin Futures, told futures Daily that first, both global and domestic demand for iron ore have peaked, and there is a high probability of subsequent decline.Second, the supply of iron ore at home and abroad is basically stable, and the ore demand is gradually easing.Third, with the current demand for steel has also begun to weaken, the decline in demand for steel will also be transmitted to raw materials.Fourth, the recent reversal of the Fed's hawkish attitude, the strengthening of the dollar, the expectation of future global monetary tightening, and the reversal of the macro factors that drove commodities higher.

Data showed that the total volume of Iron ore shipped from Australia to Brazil last week was 25.666 million tons, up 942,000 tons from the previous week.Australian shipments totalled 19.274 million tonnes, up 2.366 million tonnes from the previous month.The number of ore arrivals at China's 45 ports was 184 last week, 30 more than the previous week.China 45 port ore is expected to arrive at 26.4 million tons, 2.9 million tons more than the previous week, compared with the previous week, the arrival of significantly increased."Overall, iron ore shipping weekly data short-term volatility, but iron ore supply is still tending to ease."

Data show that on August 16, China's 62%-grade imported iron ore price index was 161, down 1.23% from August 9.The price index for 58% grade imported iron ore was 129, down 1.53% from Aug. 9."From the supply side, the total volume of global iron ore shipments rose month-on-month, with the reduction mainly coming from Australia.At the same time, the volume of iron ore to the port continued to rise month-on-month, according to the pace of shipment, the late volume of the port may fall.From the demand side, the capacity utilization rate and output of blast furnace of domestic steel mills increased slightly in this period. At present, the production limit of steel mills is still strict. Steel mills mainly purchase on demand, and the short-term intention of replenishment of iron ore is low.In general, the current iron ore supply and demand pattern is relatively loose, the port iron ore inventory is expected to recover, the iron ore price is expected to be weak in the later period."Iron ore prices have been volatile recently, and market participants need to be alert to the risks."Mr Yao said.

Soochow futures black analyst Zhu Shaonan believes that in the first half of this year, the growth rate of crude steel production has been greater than that of pig iron production, the main reason, on the one hand, is that the output of electric furnace steel increased significantly year-on-year, on the other hand, because the steel mill by adding scrap steel means to increase output.From January to June, China's pig iron production was 456 million tons, up 23.7 million tons year-on-year, or 5.5%.The crude steel increment contributed by pig iron is about 22 million tons, and the scrap steel supply increased by nearly 42 million tons, of which about 18 million tons are contributed by electric furnace steel, and 24 million tons are contributed by adding more scrap steel in converter.In the third quarter, nearly 20 million tons of pig iron production capacity was put in place.Therefore, only by reducing the amount of scrap steel is not able to achieve the year-on-year decline in crude steel output, to achieve the year-on-year decline in output, crude steel output must be reduced pig iron output, and only through mandatory production reduction, which is also in line with the carbon peak, carbon neutral medium and long term goals.If pig iron production is not to increase year-on-year, then the corresponding iron ore demand will be reduced by about 37 million tons.

From the iron ore supply side, in the second half of the year, the mainstream mines FMG and BHP will be flat year-on-year, Rio Tinto and Vale will still contribute part of the increase, is expected to be close to 30 million tonnes year-on-year increase, considering the first half of the decline in the proportion of iron ore shipped to China, is expected to be around 15 million tonnes in the second half of the four mines shipped to China.Non-mainstream mines and domestic mines in the second half of the year as a whole is stable in the increase situation.In short, the supply of iron ore in the second half of the year will have a small part of the increase, and the demand side will have a significant contraction, coupled with the port of iron ore in the second half of last year has a significant accumulation situation, so the overall supply and demand of iron ore will maintain a loose situation.

It is worth mentioning that the recent coking coal, coke in the black series of commodities in the strong run.Yao Gang believes that the strength of the double coke is actually because there is a gap between supply and demand."From the source, it is because coking coal is out of stock and the gap is difficult to fill. Although the price has risen a lot, the gap still cannot be filled.The main reason for this is the lack of domestic coking coal resources. In previous years, China had to rely on imported coking coal from Australia, Mongolia and other countries. Australia's imports were cut off, and Mongolia's imports were not smoothly due to the epidemic, transportation and other reasons."

"The shortage of coking coal shows no sign of abating so far, and the price increase cannot adjust to the increase of supply."Yao gang believes that the inventory data can best highlight the tight supply and demand state, last week 247 sample coking plant coking coal inventory days 14.7 days, this is the lowest in recent years.The coking coal inventory of independent coking enterprises was 13.653 million tons, much lower than last year and the same period of the year before.Coking coal stocks at 110 sample coal washers were 2.7718 million tons, also a three-year low.

The extreme shortage of coking coal has supported the price of coke. Because a batch of backward production capacity was eliminated last year, the replacement of new production capacity has not been successfully produced so far, so there is a certain gap on the supply side, but the gap is smaller than that of coking coal.Last week, China's total coke inventory (including coking plants, steel mills and ports) was 9,552,500 tons, down 244,800 tons month-on-month, down for four consecutive weeks, and also at the low level in nearly three years."So in both coking coal and coke, there is a real gap between supply and demand and there is no short-term solution, and prices for both will remain strong for some time to come."Mr Yao said.