Rebound in iron ore prices likely to pause as Chinese mills trim output

BEIJING (Scrap Monster): The monthly analysis report released by the China Iron and Steel Association (CISA) predicts that iron ore prices may drop during rest of the current month. The prediction is based on the assumption that consumption is likely to drop sharply as Chinese mills plans to cut production on account of Lunar New Year holidays.

According to CISA report, steel mills in the country have adequate stocks of iron ore leading to Lunar New Year holidays. The iron ore port inventories have jumped higher by nearly 2.4% over the previous month to 95.58 million mt by end-January. The consumption levels are likely to drop during the holiday season. Steel sector activity is likely to remain subdued for at least two weeks starting February 8^th. The reduced demand may fizzle out the recent rebound in iron ore prices. Further, the prices of the steel making raw material may witness modest declines during the rest of the month.

Meantime, CISA report notes that the country’s crude steel production has not been able to reverse its declining trend even during 2016. The average daily crude steel output by Chinese mills during the initial 20-days period in 2016 has dropped further by 2.1% to 1.61 million mt when matched with the previous month. The monthly crude steel production figures are also likely to post decline during January this year.

The rise in low-cost supplies from major producing nations including China may impose downward pricing pressure going forward, the monthly report notes.