Iron Ore Rises on Supply Risks

Iron ore futures in China climbed above CNY 710 per ton on Wednesday, recovering from losses in the previous session as fresh supply concerns supported prices despite ongoing demand headwinds. Analysts cited supply disruptions in top producer Brazil linked to El Niño weather patterns. Smaller Brazilian iron ore producers are also facing sharply higher shipping costs to major consumer China, squeezing margins and leading some to cut production. On the demand side, iron ore prices gained support from expectations that Chinese steel mills will restock ahead of the extended Golden Week holiday in early October. Meanwhile, the market continues to contend with weakening steel mill profitability in China, largely due to elevated coking coal prices as safety inspections and mine suspensions in Shanxi restricted domestic supply. Softer demand from China’s construction and manufacturing sectors has also weighed on ferrous metal purchases.

Iron ore futures in China dropped below CNY 710 per tonne, approaching the one-year low of CNY 695 reached in early August, on weak demand and as crisis at the major trader has halted a significant source of physical iron ore liquidity. Iron ore trading giant Radiant World disclosed $870 million in outstanding liabilities to six different trade financing firms, detailing creditors’ exposure to the company, which has been accused of fabricating invoices to secure funding. The outstanding amounts have yet to be repaid. Beyond disrupting a segment of the trading market, the developments are also expected to tighten funding rules for other traders, having already contributed to the sharp decline in ore futures in late July. Meanwhile, weakening demand from China’s construction and manufacturing sectors has also dented ferrous metal buying. New yuan loans were sharply below historical averages in August, while the construction PMI fell to a record low.

Iron ore futures traded around CNY 715 per ton, holding recent gains on expectations that Chinese steel mills will increase raw material purchases ahead of the long Golden Week holiday in early October. The demand outlook also improved after several Chinese steelmakers pledged to cut production in an effort to reduce steel inventories as profit margins shrink rapidly. Profitability across China’s steel industry deteriorated sharply, weighed down by elevated production costs and weak demand for steel. However, expectations that major coking coal mines will resume operations in September and October following a fatal mine accident in May improved the supply outlook for a key steelmaking ingredient. Meanwhile, industry data showed that iron ore inventories at 35 major Chinese ports increased by 840,000 tons week-on-week to 144.33 million tons as of September 18, reversing an earlier destocking trend.