The current ratio of iron ore concentrate to coking coal concentrate continues to operate in the low range of the year, which also confirms that the overall valuation of iron ore is already at a high level.

Since mid - May, the spot and futures prices of iron ore have weakened in unison. The main contract has declined from its high of 826.5 RMB/ton to around 790 RMB/ton, a cumulative fall of 4.17%. Spot prices have also come under pressure. The latest Platts 61% iron ore CFR price index is 107.25 dollars/ton, down 5.1 dollars/ton from the previous high. During the same period, the prices of mainstream spot varieties in Qingdao Port fell by 21 to 43 RMB/ton.

Optimism cools

In mid-May, the overall black metal sector experienced a volatile decline. The reasons are as follows: on the one hand, the previous market optimism gradually cooled down, and the trading volume of the main contract varieties in the black series has been adjusted, among which the participation in the steel futures market has declined; on the other hand, May is a transition period from the traditional peak consumption season to the off-season, downstream demand has weakened marginally, while the supply of upstream raw materials has remained at a high level, leading to a weakening of the industry's supply and demand pattern, which has dragged down the overall performance of the black metal sector.

It is worth mentioning that the price trend of iron ore has been relatively resilient in the face of the rise in maritime freight rates and the support from downstream rigid demand. At present, the current screw - ore ratio and coke - ore ratio continue to operate within the low range of the year, which also confirms that the overall valuation of iron ore has been at a high level.

Limited demand increase

At present, the market demand for iron ore is still acceptable, but the incremental space is limited. In the case of active steel production, the terminal consumption of ore is at a high level. As of the week ending May 15, the daily iron water production and the daily consumption of imported ore of the 247 steel mills of Steel Union were 23.933 million tons and 2.945 million tons, respectively, both of which were at the highest level of the year. At the same time, the profit situation of steel mills has been greatly improved, and the latest value of the profit ratio of the 247 steel mills of Steel Union is 64.07%, which has increased by 25.97 percentage points compared with the previous low point.

Currently, the overall profitability of steel mills is improving, which supports the demand for iron ore. However, during the off-season, internal industrial contradictions in the steel market are prone to continue accumulating, and the room for improvement in the market is relatively limited. During the peak season, the supply pressure of mainstream steel varieties is generally controllable, and the inventory continues to decline. However, the decline in real estate investment in April further widened, with the construction area and newly started area of houses decreasing by 48.8% and 27.1% year-on-year, respectively, and the demand for steel in building materials is significantly weak. At the same time, the momentum of steel exports is strong, but it has not effectively led to a recovery in steel demand in domestic manufacturing, and the growth rate of manufacturing investment in April turned negative year-on-year.

Overall, the two core downstream industries of steel have shown a sluggish trend, the demand expectation in the off-season continues to weaken, the contradictions within the industry continue to accumulate, and it is difficult to push the steel mills to increase production on a large scale, and the new space for the demand of iron ore is relatively limited.

Supply is high

High inventory levels persist. Current domestic iron ore stockpiles in 47 ports amount to 172 million tons, an increase of 24.42 million tons year-on-year, and the total inventory across the entire industry chain has increased by 10.05% compared to the same period last year.

The overall market supply is becoming more relaxed. The high iron ore prices continue to boost the enthusiasm of overseas mines to ship goods, and the increase in non-mainstream iron ore shipments is particularly eye-catching. As of the week of May 17th, the global iron ore shipment volume was 320.547 million tons, an increase of 34.603 million tons compared to the previous week. This year, the global iron ore shipment volume has increased by 2.823 million tons compared to the same period last year, and the increase in non-mainstream iron ore shipments exceeds 24 million tons, which has become the main force driving the growth of market supply.

Notably, the pace of production and shipment of the Simandou project has been accelerating, with recent weekly shipment volumes approaching one million tons. If this shipment scale is maintained, the overall supply of iron ore this year may exceed market expectations. Data shows that the average price of iron ore in May was $110.22 per ton. Driven by the high price trend, the willingness of overseas mines to ship has significantly increased, and combined with the concentrated shipment at the end of the fiscal year, the supply of iron ore in the future is highly likely to maintain a high level.

To sum up, the macro expectation adjustment and the weakness of the industry fundamentals resonate, and the iron ore price has declined from the high. Looking forward, the downstream demand continues to be sluggish, and the high shipping volume adds to the pressure, so the iron ore price lacks the upward momentum, and the market will continue to consolidate and decline.

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