Iron ore prices advanced on Thursday as benchmark steel futures in Shanghai rose for a second straight session, but gains were capped as top steel producer China reiterated its goal to rein in commodity inflation.
Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) were up 1.8%, changing hands for $216.84 a tonne, according to Fastmarkets MB.
The most-traded iron ore contract for September delivery on China’s Dalian Commodity Exchange ended daytime trading 0.7% higher at 1,178 yuan ($184.53) a tonne.
The benchmark 62% iron ore traded at $213 a tonne in China on Wednesday, the highest since May 19, based on SteelHome consultancy data, although buying interest was stronger in lower-grade, but cheaper materials as steel profit margins have recently narrowed.
“We’re already seeing reports surface that mills in China have a reduced preference for higher-grade ore with steel mill margins down 75-85% from peaks in mid-May,” commodities analyst at Commonwealth Bank of Australia Vivek Dhar told Reuters.
“As steel mill margins remain low, and possibly weaken further, we expect this preference to become more prevalent.”
The S&P Global Platts 62% Fe index, IODEX, reached a record $233.1/dmt on May 12 driven by a resurgence in global demand, tightening supply and runaway steel prices.
“Although the IODEX eased back slightly in early June, iron ore and steel will be key beneficiaries of the infrastructure investment drive in China and the US, as well as from the global renewable energy transition over the medium to long term,” said S&P Global Platts in a note.
“With a global steel production recovery underway, S&P Global Market Intelligence expects the iron ore seaborne trade deficit to deepen in 2021 and remain in deficit to 2025.”
Iron ore and steel prices in China hit record peaks last month, adding to inflation pressures that could prompt monetary policy tightening, but the central bank governor on Thursday said inflation was “basically under control.”
China’s commerce ministry said it was paying close attention to “the difficulties and challenges faced by foreign trade companies in raw material prices, exchange rate fluctuations and freight rates.”
(With files from Reuters)