China has issued its third warning this month against excessive speculation in iron ore, adding it will increase supervision of the country’s spot and futures markets.
Iron ore futures in the world’s top user of the raw material rallied 5.6% in the first two weeks of the year to a 17-month high of 896.50 yuan ($1US32.26) a tonne on January 13 (last Friday), as investors bet on surging demand for the steel ingredient as China’s economy reopens.
Companies should not engage in price gouging and speculation, said the National Development and Reform Commission (NDRC), in a post on its official WeChat account., Reuters and other agencies reported
It issued similar warnings on January 15 and January 16 and summoned iron ore trading and futures companies, ordering them not to selectively quote data and information, deliberately exaggerate price increases or bid up prices.
Offshore markets are following the domestic futures prices – the Singapore iron ore futures contract peaked at a 9-month high on Friday (January 13) of $US125.50 a tonne but by yesterday had fallen back to $US121.45 a tonne.
But is the government jumping at shadows – some of the buying to to secure positions across the week long Lunar New Year break by mills looking to buy ore for February and March delivery.
The NDRC took aim at coal futures markets and traders in mid to late 2021 when coal shortages saw power blackouts and domestic thermal coal prices surged to well over $US300 a tonne – current thermal coal prices are around $US140 to $150 a tonne.
The warning has left Australian iron companies a little confused – they are not benefitting, the speculation is domestic but they will be singled out if it continues, just as coal exporters to China (not Australian) were blamed in 2021.
And the outlook for iron ore and crude steel this year is just as confused as it was for most of 2022.
The wash-up of China’s December and 2022 economic data dump this month has left the Australian iron ore sector a little twist and ’tween – steel and iron ore demand and production eased again last year but the losses were nowhere near some of the alarmist forecasts during the year.
Monday we learned that iron ore imports fell but remained above a billion tonnes for the 6th year in a row at 1.11 billion and on Wednesday, we were told crude steel output dipped but stayed above a billion tonnes for a third straight year at 1.010 billion tonnes after looking to go under that figure in the Covid lockdowns mid-year.
It was the second annual fall in production in a row and unless there is a significant rebound in demand from the property sector later this year, crude steel output will dip back under the billion-tonne level and remain there.
In fact, since the first quarter of 2022 when crude steel output fell 10.5% to 243 million tonnes, output has recovered rather strongly given the impact of the Covid lockdowns and slumping demand from the financial embattled property and construction sectors.
US bank Jeffries expects total crude steel output in 2023 to fall by 2% year-on-year (around 20 million tonnes) from the 1.01 billion tonne level reached in 2022 because of profit-driven output cuts in a weak market and policy-induced cuts to contain carbon emissions.
China’s December steel output rose 4.5% to 77.89 million tonnes last month, according to data from the National Bureau of Statistics, up from 74.54 million tonnes in November.
Production, however, was down 9.8 % from December 2021’s 86.2 million tonnes.
Demand from the construction sector is expected to remain weak because of the depressed property market.
While the central government has revealed measures to support cash-strapped property developers, they are focussed on keeping quality developers afloat, rather than aggressively boosting demand.
