DCE iron ore futures drop 6.5% amid gloomy economic sentiment

Iron ore demand pessimism dominates China's commodity futures market again, with the most traded iron ore futures contract on the Dalian Mercantile Exchange (DCE) for delivery in January 2022 ending a five-session rally on Friday, falling 6.7% in yuan. 41 /dmt ($ 6.4 /dmt) from Thursday's settlement price to close the afternoon session at 575.5 yuan /dmt, DCE data shows.



“Steel mills in Tangshan (in Hebei province in northern China) have again been instructed to comply with yet another round of extreme production restrictions, and this will definitely affect the demand for iron ore in this area,” commented a Beijing-based iron ore trader.

As reported, starting on the afternoon of November 24, Tangshan's steel mills were ordered to scale back operations at their sinter plants, blast furnaces, shaft furnaces and other facilities to enable local authorities to cope with the sudden rise in atmospheric pollution over the city.

“But looking further beyond the extreme restrictions, the market is also concerned about falling demand for iron ore before and during the Winter Olympics,” a trader noted, “so it's no surprise that iron ore futures have declined. Today. "

According to Mysteel Global, the Winter Olympics will kick off on February 4 in Beijing and cities in neighboring Hebei province, where steelmakers are already warned of impending production restrictions to ensure a clear sky for sporting events.

A spokesman for the Hebei-based steelmaker admitted on Friday that there is a strong likelihood that its plant will be downsized during the Games, although the exact duration and severity of the restrictions has yet to be determined. The actual winter games will be held in three zones, namely in Beijing, Yanqing and Zhangjiakou in Hebei province, and will last until February 20, Mysteel Global notes.

“Over the past few days, the market, especially some speculators, have acted according to the logic of the resumption of production by steel mills. But in all fairness, given the winter production restrictions and the frequent extreme restrictions on steel mills in North China during the winter season, it is difficult to see any significant production resumption in the factories in this region, ”the trader added.

Mysteel's latest data showed that blast furnace capacity utilization among 247 Chinese steel mills in the Mysteel study fell another 0.11 percentage points for the sixth week in a row from November 19-25 to 75.23%, or a new low since late March 2018. ...

Other market sources also noted that ample supplies of iron ore in Chinese ports weighed on iron ore prices when demand for such reserves remained weak.

By November 25, total stocks of imported iron ore in China's 45 major ports, according to a Mysteel study, rose 1.5 million tonnes per week in the ninth week to about 152.5 million tonnes, or a new high since August 2018, mainly due to for the arrival of new carriers. the volume of unloading has increased, and the daily norms for unloading at these ports have decreased.

“Consequently, the increase in iron ore prices that we saw earlier this week may be more related to sentiment, as I do not see a significant increase in ore prices in the near future, given the actual fundamentals of supply and demand for ore,” - said Shanghai. - commented an analyst on iron ore from a futures company.