Why does iron ore demand drop price rebound substantially?

Iron ore prices have risen more than 30% in less than three weeks, recovering from a fall to $94 a tonne in September.Under the background of China's reduction of crude steel capacity and declining demand for iron ore, the current iron ore port inventory is at a high level. Why will the price rise so much?

Volatility has rebounded since late September, with a 62% grade of fine ore now trading at around $125 / ton, up about $30, or more than 30%, from a low of $94 on Sept. 21.At the same time of the price rise, China's iron ore port inventory is climbing, currently more than 133 million tons, and considering the port vessel inventory, the current inventory level is significantly higher than last year and the year before the same period.Higher inventories mean lower demand, so why have iron ore prices rebounded sharply?

Wang Guoqing analysis, on the one hand, the reason is that domestic steel recently intensive stocking."Steel mills have a need to stock up before the National Day because they need to adequately prepare raw materials for the National Day period.In addition, after the National Day, because steel mills have consumed most of the iron ore inventory, there is also a replenishment demand after the holiday.Our survey found that steel mills in most areas are planning to purchase after the holiday, so there is a short-term demand release process for iron ore."Wang Guoqing said.

In fact, although steel mills are buying more, shipments of iron ore from overseas mines are also increasing, leading to a simultaneous increase in inventories and prices.

Industry insiders believe that this round of iron ore prices rebound sharply also affected by market psychology and speculative factors."Recently, some foreign mines will suspend production, which means high-cost mines will suspend production," said an industry insider.Such shutdowns and supply cuts can also cause the market to start losing supply as prices fall."This also makes it likely that the market will view below $100 as a low level, where the market is more supportive and vulnerable to a rally."

Then there is the recent surge in iron ore import costs.The Baltic Sea Index, which measures shipping prices, reached 5,526 on Oct. 8, up 1,116 from Sept. 21.Wang Guoqing pointed out that China's iron ore is mainly shipped by sea, from Brazil and Australia, because Brazil is far away, the freight accounted for a relatively high, easy to affect iron ore prices.Guo-qing wang said: "the most typical is Brazil to China's freight rise very obvious, like on October 8th, touba lang in Brazil to China freight is $48.9 / ton, on September 21st, the price is only $36.66 / ton, the equivalent of more than 20 days, Brazil to China's freight rose $12.2 / ton."

However, many experts still believe that in the future, China's iron ore demand will continue to decline, supply will be more and more loose, the price has a certain space to decline.On the one hand, the fourth quarter will continue to reduce crude steel output, and strive to complete the annual target tasks.On the other hand, the autumn and winter air pollution prevention cycle is longer, the scope is larger, steel industry production is bound to be limited.There is also the strengthening of energy consumption double control, will also have an impact on the steel industry.

Industry insiders expect iron ore prices to return to around $100 a tonne in the coming months, and certainly below that in the long term."In the long run, for example, two or three years later, as China's steel demand reaches a plateau, as scrap supply increases, and as new projects developed by overseas mines come into operation, the supply of iron ore will obviously exceed demand.In the long run, the price of ore is definitely below $100."