Reserve demand to support iron ore prices

As the Spring Festival approaches, it is expected that the demand for pre-holiday steel replenishment will still support the price of iron ore. However, after the holiday period, the demand for iron ore will continue to weaken as demand for make-up stocks falls.

Slower pace of production increase in the four major mines

Recently, the world’s four largest mines have announced their fourth-quarter earnings reports in 2015. The world's second-largest iron ore producer, Rio Tinto, recorded a record number of iron ore shipments in 2015, reaching 336.6 million tons, an increase of 11% year-on-year. FMG's shipments of iron ore in the fourth quarter of 2015 were 42.1 million tons, an increase of 0.48% from the previous quarter, and the cost of C1 fell to US$15.8. BHP Billiton was affected by the Samarco tailings event and lowered its 2016 production forecast.

Overall, the production costs of major international mines continue to move downwards. Moreover, although the planned increase in output for the current year has narrowed compared with 2015, the overall pace of production increase has remained.

Mine supplies inside and outside have declined

From the internal and external port data, iron ore shipments from Brazilian and Australian ports fell in mid-January, and iron ore stockpiles from major domestic ports also fell back to January 29 from the 97.78 million tons in the week of January 15. The daily 95.58 million tons. The terminal No. 1 in Tubarão, Brazil, which was shut down due to environmental issues, has just resumed operation. The hurricane in the sea near Western Australia has begun to affect the port shipment and ship operations. However, the current inventory of internal and external ports is at a high level, and iron ore supply pressure can only be alleviated slightly.

The domestic mines continue to reduce production, and the country’s mining operating rate has hit new lows. On January 29, it has dropped to a low of 36.5%.

Steel factory preparing for resumption of production, iron ore make-up

Contrary to the trend of port and mine stocks, domestic iron ore stockpiles have rebounded. According to statistics, as of January 22, the average number of days for iron ore imported from large and medium-sized steel mills nationwide has risen to 25 days, which has increased for three weeks. At the same time, domestic steel mills have increased their inventories of domestic refined fines. Steel stocks are more obvious.

The profit ratio of steel mills in the country has risen for six consecutive weeks, and it has now reached 25.77%. The national blast furnace operating rate also saw a slight rebound on January 29. At present, the main factors restricting the resumption of steel production are holiday factors. There is a certain economic cost for the resumption of production of blast furnaces, and it is not appropriate to stop and resume production. Steel mills tend to resume production after the holidays in order to ensure continuity of production after blast furnace restart.

Concerned about the changes in the operating rate of post-holiday mills

In summary, the pre-holiday iron ore prices will remain strong under the stimulation of supply-side factors, and the post-holiday steel companies will reduce the iron ore price due to the decline in iron ore prices, but in the context of a rebound in steel plant operating rates. Iron ore will be stronger than rebar.