China: Seasonal supply increase to weigh on Chinese iron ore prices in May

• Higher steel margins support mill production growth
  
  
• Chinese hot metal output rises 5.2% m-o-m
  
  

Mysteel Global: Prices for imported iron ore in China are expected to soften in May, pressured primarily by a potential surge in global shipments during the traditional peak supply season, according to Mysteel's latest monthly report on the commodity.

During April, iron ore prices fell initially but later rebounded, ending the month with an overall gain. For example, Mysteel SEADEX 62% Australian Fines averaged $108.8/dmt CFR Qingdao in April, up $0.9/dmt from the $107.9/dmt average recorded in March.

Apart from the elevated freight rates from the ongoing hostilities in the Middle East, imported iron ore prices also gained some strength from the resumption of steel production among domestic integrated steel mills, the report noted.

Mysteel's tracking of the 247 Chinese blast-furnace (BF) steelmakers it regularly checks showed that their combined average output of hot metal per day in April rose by 5.2% from the March average to reach 2.39 million tonnes/day.

Mills basically ramped up their production in response to an uptick in consumption among steel end-users, while improving weather conditions over urban centers such as Tangshan in northern China led to fewer production curbs being imposed by local governments concerned about atmospheric pollution.

In addition, better profit margins springing from rising steel prices also encouraged mills to increase production. As of April 30, about 51% of the 247 surveyed BF steel mills - or 126 steelmakers - could earn profits on steel sales on April 30, up by 3 percentage points from a month earlier.

Notably too, last month the 2026 supply contract between state-run iron ore buyer China Mineral Resource Group and Australian iron ore supplier BHP was finally concluded, meaning that domestic mills were no longer restricted from buying certain BHP cargoes.

However, the foreseeable rise in BHP supply following the deal didn't trigger a drop in iron ore prices, as the market had already priced in much of the expected ore-price rise earlier. As a result, iron ore prices tracked higher toward the end of April, the report noted.

Looking ahead to May, macroeconomic support for commodity prices is likely to fade, as the impact on market sentiment of geopolitical risks is diminishing and no new stimulus packages from the Chinese government are on the horizon, the report argued.

Consequently, in the weeks ahead, China's iron ore prices are expected to decline amid weakening fundamentals, pressed lower by a seasonal surge in global supply - due to fewer weather events in Brazil and Australia - and a gradual decline in domestic demand.

On the supply side, Mysteel forecasts that global iron ore supply in May will increase by over 10 million tonnes from April, with BHP ramping up volumes to make up for lost China tonnage, with production from the massive Simandou project in West Africa gaining momentum, and with Venezuela's production growth exceeding expectations.

As for demand, hot metal production among Chinese steelmakers is expected to peak in the near term. Specifically, daily hot metal output among the 247 Chinese steelmakers under Mysteel's monitoring is anticipated to top out at around 2.4 million t/d, slightly below the 2025 peak of 2.45 million t/d recorded in early May, the report predicts.

With supply outstripping demand, China's portside iron ore stocks are likely to build up again during this month. By April 30, inventories at the country's 47 major ports under Mysteel's regular tracking stood at 172.2 million tonnes, down 3% on month. This volume is expected to rise to 176 million tonnes by the end of May, the report projects.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.