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Chinese steelmakers will fail to reduce ore prices

Mining industry / Analytics

Iron ore stocks in Chinese ports will remain low as Australian, Brazilian and inland Chinese miners are unlikely to increase production.

Chinese steelmakers will fail to reduce ore prices

Chinese steelmakers, frustrated by the rise in iron ore prices, are unlikely to get a respite unless their own demand for raw materials suddenly drops.

Last week's news that eight Chinese steelmakers who are members of the China Metallurgy Association (CISA) have decided to put pressure on the Chinese government to investigate a 70 percent increase in the price of iron ore since the beginning of the year has caused unrest in As a result, the spot price of iron ore on Friday fell by $ 8 to $ 114 per tonne.

But the price rebounded quickly, rising 2.5 percent on Tuesday evening to $ 121.57 a tonne.

Iron ore trading on the Dalian Commodity Exchange has indeed played a role in setting sentiment in the iron ore market. The physical market price is set through a daily spot auction where the winner purchases a shipment of up to 150,000 tonnes of ore and places a letter of credit with a bank to purchase a shipment of up to $ 20 million at current prices.

In the physical market, if a lot of goods are offered, but few offers are received, the price will drop. And if offers for cargo are limited, the price rises. Today it is this situation and the intervention of the regulator or the commission of metallurgical companies can only aggravate the situation.

Production at Brazilian giant Vale dropped after a tragic mine disaster in January, while a series of production problems in Australian mines have hampered supplies from Rio Tinto and BHP over the past 12 months - including train accidents, mine planning issues and bad weather. - even more compressed stock.

China's domestic iron ore mines have not entered the market as in previous periods of high prices, as China's stringent air pollution standards have resulted in many small and medium-sized iron ores being shut down in recent years.

According to the most optimistic estimates, the production of Chinese ore in 2019 will be higher on an annualized basis by only 5 million tons compared to last year's production of about 400 million tons. But this is 10 million tons below the 2017 production level.

Meanwhile, Chinese steel production remains strong despite high iron ore prices as the Chinese government tries to stimulate the economy to ease trade tensions.

Ultimately, the fate of the market will depend on steel production in China. If it continues to remain high, iron ore reserves are unlikely to recover this year.

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