World iron ore prices are less affected by China's increased market surveillance

Spot iron ore price contracts in two main markets, Singapore and China, fluctuated in opposite directions last week. While iron ore prices in Singapore increased, in China they decreased.

These two standard prices often fluctuate in parallel, but sometimes separate, especially when Beijing expressed dissatisfaction with the price increase over the continuous increase in the price of this important steelmaking material in the past year. recent weeks.

But the rise in Singapore Exchange iron ore prices suggests that Beijing may be trying to contain domestic prices, but will have difficulty controlling international prices, especially if there are fundamental reasons supporting prices. higher iron ore.

The January 2023 contract in Singapore ended at 132.6 USD/ton on December 1, up 1% over the week and the highest closing level in 18 months.

Front-month futures on the Dalian Commodity Exchange ended last week at 969 yuan ($135.71)/ton, down 0.8% for the week, the first weekly decline after seven consecutive sessions of gains. next.

Although prices fell only modestly, the decline in the number of contracts on the Dalian exchange shows the anxiety of Chinese domestic traders over some measures to curb the recovery in iron ore. .

On November 30, this exchange said it would continue to strengthen supervision of iron ore futures contracts to maintain safe and stable operation of the market.

The move came after China's state planning agency announced it would strengthen monitoring of iron ore at ports and guard against hoarding and speculation.

The National Development and Reform Commission also said it would tighten supervision of the spot and futures markets to respond to the "continuous and rapid" increase in iron ore prices.

Iron ore futures contracts on the Dalian exchange have increased 65% since closing at a yearly low of 587.5 yuan/ton on May 25.

This recovery appears to be at odds with weakness in China's real estate sector, which is struggling with low prices and liquidity problems among major developers.

However, confidence has gradually returned to the iron ore market amid efforts by the government to promote the sector and some signs of improvement. China's new home prices increased slightly in November, marking the third month of increases.

But despite the real estate sector's troubles, China's iron ore imports remained relatively strong in 2023.

China's iron ore imports are still increasing

Official customs data shows that in the first 10 months of this year, China imported 975.84 million tons of iron ore, up 4.6% over the same period in 2022.

The amount of imported goods in November is also forecast to increase sharply. Commodities analysts Kpler tracking China's iron ore imports said November could reach closer to 104 million tonnes, while LSEG data was less optimistic at 96.72 million tonnes.

Overall, it is likely that November imports will more or less match October's customs figure of 99.4 million tons.

Another bullish factor is inventory levels at Chinese ports, with data from consultancy SteelHome showing inventories of 110.7 million tonnes in the week to December 1.

That's up from 108.5 million tons last week, but it's worth noting that inventories are much lower than usual levels for this time of year and only slightly above their lowest level in 7 years. year was 105.15 million tons, recorded in the week ending October 20.

In the same week last year, iron ore stocks were 137.5 million tons and were 155.4 million in the same week in 2021.

Depleted inventory levels suggest iron ore imports could remain high in the coming months, especially if steel mills and traders become more confident that the worst is over for the real estate sector .

Overall, both fundamentals and sentiment have turned in favor of iron ore prices in recent weeks and the only thing working against higher prices, or at least maintaining recent gains, are strong moves stronger than Beijing's.

History shows that authorities can cool iron ore prices, but only for a relatively short period of time, especially if market conditions support higher iron ore prices.

Vietnambiz