Iron ore bottomed out and the decline may not end

The price of iron ore has fallen to a new low of 10 years, which is a drop of 75% compared to the 2011 high of US$190/ton. In the past two trading days, the price of Dalian iron ore ** continued to rise sharply. On April 14, Dalian Iron Ore ** main contract 1509 closed at 396 yuan per ton, an increase of 4.49%.

In this regard, analysts said that due to large-scale production cuts or bankruptcies in many mines at home and abroad, to some extent eased the pressure on supply, and China's macro environment is expected to improve, and in April the traditional demand season, so that the rapidly falling ore prices Support, but in the medium to long term, excess pressure remains, and the fall in iron ore prices may not end.

The three major mines "have succeeded"

Although iron ore prices have continued to fall, Rio Tinto, BHP Billiton and Vale have chosen to increase production. Due to oversupply, iron ore prices have fallen by nearly 60% in the past year. Iron ore is the main source of profits for the three major mines.

In October last year, BHP Billiton said it plans to increase its iron ore production capacity by 30% without developing new projects. In addition to BHP Billiton, Vale, the world’s largest iron ore mining company, plans to increase production from 306 million tons last year to 450 million tons by 2018. Rio Tinto plans to increase production from 266 million tons last year to 360 million tons by 2016.

According to Rio Tinto, despite the slump in iron ore prices, some smaller competitors are in trouble, but they will continue to increase iron ore production. Even if they do not choose to increase production, other companies will do the same.

The news shows that at present, foreign small and medium-sized mines have reduced their production or bankruptcy. In particular, Atlas, a well-known Australian iron ore company, issued an announcement announcing the suspension of production, which is expected to involve a production capacity of 13 million tons, plus the previous Australian iron ore producers. Arrium, CMC, and CML in the United States reduced production capacity by 3.6 million tons, 4 million tons, and 2 million tons, respectively, which resulted in a large-scale production reduction of iron ore in the country, while overseas small and medium-sized mines could not contain it, which eased supply to some extent. pressure.

Under the support of production cuts, domestic iron ore ** rebounded sharply. Analysts believe that the tax reform of mineral enterprises will also be favorable to domestic ore prices in the short term and promote the stoppage of ore prices.

Low inventory or normal

It is worth noting that the domestic iron ore port inventory has dropped by about 3 million tons in April. Analysts said that the decline in port inventories was mainly due to the decline in ore prices faster than the decline in steel prices, which led to an increase in the profitability of steel mills and an increase in purchasing demand.

The data show that since the start of April, the steel plant operating rate has increased significantly, reaching 86.88% as of April 10, approaching the level at the end of January; and the average inventory days for steel mills have also increased to 29 days, and the charge-to-fuel ratio has also increased to 93%. .

Assistant Cheng Xiaoyong, director of Baocheng ** Financial Institute, also said that from the perspective of port inventory, iron ore stocks fell significantly on the one hand because domestic iron ore importers reduced the number and frequency of imports, due to the overall mild domestic demand The need to go to inventory under the pressure of funds, and the other aspect is the supplemental storage of the seasonal peak season for steel mills in April. It is difficult to judge whether the decline in port inventories is the norm. The reason is that the four major mines are still increasing production. It is estimated that the global surplus will still exceed 100 million tons in 2015, and these surpluses can only be digested by China while China is undergoing environmental governance and economic restructuring. The background is difficult to digest and has to be converted into port inventory, while the real estate New Deal is only guiding the real estate industry to inventory, and the recovery of new construction starts will be limited.

Cheng Xiaoyong said that for the domestic steel industry, the phase-out of production capacity and environmental protection rectification will be a long-term process, and now that many places have begun to limit new production capacity, the situation of overcapacity will gradually change. Therefore, in the future, even if the domestic economy maintains a steady growth level, the demand for steel will hardly increase significantly. However, this will also keep the decline in steel prices below the ore price. Therefore, the destocking of ores will be the same as the destocking of steel, and it is a new normal.

According to industry insiders, the demand for iron ore from steel mills in the second quarter may remain relatively stable and will not rise to a large extent. The reasons lie in two aspects: First, the “Belt and Road” initiative may need to be implemented in the second half of the year, especially the need for the AIIB funds to be in place; secondly, the real estate industry has reached its peak and there is no room for further substantial increases. The real estate favorable policy for China Steel The impetus for demand recovery is only short-term, and deceleration is an inevitable trend in the long-term. It is expected that iron ore may continue the bottoming process in the second quarter, and the medium-to-long term decline may not be over yet.