Iron ore futures were a touch softer – trading as low as 80.45 – in the early London morning DCE session as investors assessed the strength of China’s recovery.
Citigroup Inc. warned that the iron ore spot market is likely to fall in the coming weeks when seasonal weakness in Chinese steel demand sends prices to as low as $70 a tonne while seaborne supply is expected to recover over the coming months. The trading bank estimated a surplus of more than 80 million tonnes of iron ore in the second half of the year.
In addition, the steel demand outlook outside of China remains very bleak, with demand likely to fall by 30% year-on-year in the second quarter and 25% in the third quarter, the bank said. The declining demand can be attributed to softening of automobile demand which could last well into Q3 2020.
Fortescue Metals Chief Executive Elizabeth Gaines however painted a more upbeat outlook, saying on Tuesday that she expected iron ore demand to continue to be supported due to the China’s ongoing commitment to urbanization and development.
As steel mills are encouraged to resume operations, many market participants believe that environmental curbs this year would be less stringent, thus making Indian low-grade ores particularly appealing as mills look to better control operation costs. 57% Fe Rungta fines for June delivery were heard to trade at around $59-$60/dmt CFR China.
Iron ore futures in Singapore were softer during the DCE session, with Jun trading as low as 80.45. May and Jul also traded at 82.7 and 79.0 respectively. After the close, iron ore caught a bid, with Jun and Jul trading as high as 81.1 and 79.5 respectively. The exact reason for this modest rally unknown but it came in the wake of the Grosvenor Coal Mine explosion which resulted in the closure of the mine. Spreads-wise, May/Jun and Jun/Jul traded at 2.15 and 1.5 but have since widened out a touch to 2.2 and 1.6 respectively.