The ferrous market soared high on positive interpretations of the Politburo meeting this morning, but retreated in the afternoon. The rise driven by sentiments must ultimately be supported by facts and industry fundamentals, or it surely fizzles out.
We pointed out that steel products and iron ore markets are separate. The output of steel products varies among different products. Rebar has low output and low inventory, leading to significant price elasticity; HRC has high output and strong demand, causing price fluctuations. Iron ore remains consistently strong, closely following China's demand, as the high blast furnace operating rates of China steel mills continues to provide strong support for iron ore.
Iron ore spot prices mirrored the market’s fluctuations today, with early gains and later declines, showing an intraday volatility range of Rmb10-20/ton. Some products, like PB fines, saw substantial gains, while others, such as SP10 and Indian pellets, experienced significant declines. It is important to note that winter restocking will continue to drive significant price elasticity for iron ore.
The iron ore futures markets peaked and later pulledback today. Last night's surge, spurred by positive sentiment from the Politburo meeting, led to a high open this morning. However, a significant drop in the FTSE China A50 Index this morning caused A-shares to plunge, souring market sentiment again and leading to a price pullback. In the short term, we expect iron ore prices to continue declining, filling the Rmb793/ton gap before resuming an upward trend.
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