Data from various fields in China since the first quarter of this year show that the economic recovery growth momentum is still strong, which also makes the import demand of various raw materials and commodities continue to be strong, especially the demand for iron ore. However, the production activities of the world’s two major iron miners have been unable to reach full capacity due to the interference of the epidemic and weather factors, which makes the iron ore futures prices, which have been high for many years, still have further upside in the future.
Analysts from ANZ Bank, therefore, pointed out that the tight supply of iron ore is now obvious to all, and as long as the production capacity of miners continues to fail to keep up with the pace of demand growth, terminal prices will continue to rise. Although the two major iron miners have maintained their previous production capacity growth expectations during the year, the lagging progress in actual production capacity recovery may trigger investors to revise their expectations for the future balance of supply and demand, which will further increase the price of iron ore futures go higher.
Analysts at ANZ Bank therefore also pointed out that the short-term price outlook for iron ore futures continues to be bullish because even if raw material prices are high, the import demand of Chinese steel companies still shows no signs of declining. However, it should also be noted that the current cost price of iron ore has far exceeded the fair value of the urban market. Therefore, once the level of supply and demand rebalances in the future due to the decline in demand or the accelerated recovery of production capacity, the medium-term iron ore price will also do not rule out the possibility of a deep callback. Because based on current output, as long as China’s steel production capacity drops by 1%, global iron ore demand will fall by 15 to 20 million tons.