Pessimism casts shadow over China's iron ore market again

On Wednesday, the iron ore contract on the Dalian Commodity Exchange for May delivery extended the prior day's loss of 3.7% to record another sharp fall of 3.5%.

Previously, the contract just ended a sustained decline to strengthen for six consecutive trading days, while such a rebound only reflected a minor restoration in sentiment rather than the actual improvement in market fundamentals, as reported.

Consequently, the rather slow revival in domestic steel consumption again concerned many market pundits, especially when the robust season for steel use in China was already over halfway through, Mysteel Global noted.

Although there has been an on-month increase in steel demand, it remains below the levels seen during the same period last year, according to a senior ferrous analyst in Shanghai. She also predicted limited room for further rises in steel demand in the coming weeks.

Mysteel's tracking revealed a steady climb in apparent consumption of rebar post the Chinese New Year holiday, but it only reached a low level of 2.46 million tonnes/week over March 14-20, contrasting with the 3.1 million tonnes/week during the same period in 2023.

Fundamentally, the ongoing downturn in China's property market, evidenced by the expanded slump in newly-launched property projects, continued to suppress steel demand this year, Mysteel Global understands.

On the other hand, the performance of the infrastructure industry, which significantly supported domestic steel demand last year, has been less impressive so far this year as Beijing curbed local government's spending on investing projects to handle their debt burdens.

"This year, our steel products experienced poor sales due to the delayed construction progress at local water conservancy projects caused by a shortage of funds," a raw material procurement official from a steelmaker in Central China's Henan told Mysteel Global. The official also said that the large losses his mills suffered also led them to reduce steel production.

Actually, this has been a common situation among steelmakers nationwide, Mysteel Global noted. Only about 23% of the 247 Chinese steelmakers Mysteel regularly checks earned some money in steel sales on March 21, a drastic drop compared to 59% a year earlier.

As a result, Mysteel predicted that the hot metal production among the same 247 mills will average 2.25-2.26 million tonnes/day in April - far below the average level of 2.45 million t/d during the same month last year despite the mild recovery from the current output of 2.21 million t/d.

Chinese steel mills' production enthusiasm will continue to be suppressed, as steel demand will stay tepid under the central government's determination in the resolution of local government debt risks, the ferrous analyst agreed and in turn held bearish views on near-term iron ore prices.

Written by Lea Li, liye@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com