Iron Ore Prices Plummet! $90 Threshold Breached, Qingdao Port Hits 22-Month Low

During the trading session on September 9, iron ore futures prices on the Singapore Exchange experienced a significant decline, falling below the threshold of $90 per tonne during the session. At the same time, domestic iron ore prices at the port of Qingdao also fell to about $90 a dry tonne, the lowest since 22 months ago. This price decline reflects weak demand for iron ore and ample supply.

Looking back at 2023, the price of imported iron ore once soared to $141.5 per dry ton, and in 2022 it reached a high of more than $160 per dry ton. However, the recent decline in iron ore prices is mainly due to ample supply and sluggish downstream consumption. Industry analysts believe that the iron ore price axis may move further down this year.

The iron ore market has traditionally been known for volatile prices, and now this "easy to go up, hard to go down" situation appears to be changing. Data from Shanghai Steel Union show that the forward price index of Australian powder ore (62%) in Qingdao Port has fallen to $90.45 per dry ton on September 6, which is the lowest price level since November 2022. From the futures board, the price of the main iron ore contract on September 9 fell to 662 yuan per ton (about $93 / ton), which is also the lowest price in 22 months. The Singapore Exchange website shows that the TSI CFR China Iron ore (62% iron powder) index futures fell to $89.6 per tonne in intraday trading on September 9, which is the lowest level since August 2023.

It is worth noting that before this, iron ore prices have ushered in a rapid rise. From August 16 to 27, 62 per cent grade iron ore prices rose from $91.75 to $101.2 a dry tonne, according to Shanghai Steel Union. This rise coincided with the end of the irrational decline in domestic steel prices for several months, ushering in a long-lost rise.

Yet iron ore prices have risen by only 10 per cent, while steel prices have risen by more than twice that. The China Iron and Steel Association said in an article in late August that the rise in iron ore prices lacked fundamental support. "A sharp rise at this time is tantamount to throwing a stone in the wind, making the steel industry worse," the association said in the article.

The industry believes that the current decline in iron ore prices is mainly due to the downturn in downstream consumption and oversupply. Chen Guanyin, an analyst with the iron ore division of Shanghai Steel Union, said in an interview with reporters that the profit rate of 247 steel mills in the country is at a low level in the year, and the loss of steel mills is expanding. At present, the iron and steel industry only has a small range of profit restoration of some varieties such as rebar, and has not yet ushered in a full resumption of production after the recovery of demand, so the production of iron ore downstream products at this stage is more limited.

In addition to the weakness of downstream consumption, ample supply is also a big reason for the decline in iron ore prices. Iron ore majors are still pushing production and shipments to new records. For example, BHP Billiton's Western Australian iron ore production reached 287 million tonnes (100% equity basis) in the 2024 financial year (ended 30 June 2024), setting a record for iron ore production. Vale's iron ore production in the first half of 2024 also recorded its highest second-quarter output since 2018.

Gao Xiaoyu, deputy general manager of China National Mineral Resources Corp, recently described the fundamentals of iron ore this way: "In the past, the supply and demand situation of iron ore has maintained a tight balance for some time, and now it has gradually moved to a more relaxed situation." Chen Guanyin predicted that the global iron ore surplus will exceed 60 million tons in 2024, and the domestic fundamentals will shift from a supply shortage in 2023 to a surplus of 41 million tons.

Chen Guanyin introduced that, on the whole, the iron ore port inventory in 2024 is in the reservoir channel. Data from Shanghai Steel Union show that as of September 5, the total iron ore inventory at Port 45 was 154.09 million tons, which was 31.642 million tons from the beginning of the year, an increase of 35.411 million tons from the same period last year. At present, the high supply situation has not been reversed, and the iron ore port inventory is still under pressure.

Domestic iron ore prices are not only affected by supply and demand fundamentals, but also by macroeconomic policy and economic factors. The industry expects that the iron ore price center may move down in the second half of 2024. Chen Guanyin expects that in the second half of 2024, domestic iron ore prices will operate in the range of $80 to $110 per ton, which is lower than the 2023 level. Shanghai Steel Union data show that the domestic iron ore price of Qingdao Port in 2023 fluctuates in the range of 97.3 to 141.5 US dollars per dry ton (with reference to 62% Australian powder forward spot price index), which is at a historically high level.

"Whether iron ore prices will continue to fall in September mainly depends on whether the lumber end demand can really come out of the off-season." Chen Guanyin said that if the weekly table of thread needs to be maintained at more than 2.2 million tons, while the weekly table of hot coil needs to be maintained at more than 3.1 million tons, the contradiction between supply and demand at the end of the material will be optimized, which will bring certain support to the price of iron ore. After the end of the "gold nine silver ten" consumption season, iron ore prices in the fourth quarter are still under downward pressure.