Iron ore prices dip ahead of China's GDP report

• Iron ore spot markets fell heavily for a second consecutive session on Tuesday.

• Chinese Q1 GDP will be released on Wednesday. Monthly readings on industrial output and fixed asset investment will take centre stage for bulk commodity markets.

• The World Steel Association is forecasting that global steel demand will increase by 1.3% this year.

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Iron ore prices fell heavily for a second session on Tuesday, dragged lower by weakness in Chinese steel futures and reduced concern over the outlook for Brazilian supply.

According to Metal Bulletin, the spot price for benchmark 62% fines skidded 0.7% to $94.78 a tonne, adding to the 1.1% decline seen on Monday.

58% fines was hit even harder than the benchmark, sliding 1.9% to $77.24 a tonne. That decline followed a 1.1% drop on Monday.

65% fines also fell after climbing to fresh multi-year peaks last week, settling down 1% at $108.60 a tonne.

Image: BI

Last week, Chinese iron ore port inventories plunged 3.4% to 143.9 million tonnes, according to Shanghai Steelhome, logging the largest decline in four years. Despite the news of a significant inventory draw, physical iron ore markets have, as yet, have shown little concern towards the news.

That reaction may reflect reduced fears over the outlook for Brazilian iron ore supply, said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

"A Brazilian judge has overturned an injunction last month that prevented Vale’s 30 million tonne per annum Brucutu mine from restarting. The mine was originally halted in February, before being provided authorisation to restart last month, but that didn’t come to pass because of an injunction," he said.

"The latest ruling should pave the way for the mine to restart soon, easing the deficit in iron ore markets."

Dhar said the resumption of production at the Brucutu facility will likely support iron ore prices "in the $80s" in the medium term, although he suggests near-term supply concerns could keep the benchmark price above $90 a tonne "for a few weeks yet".

Along with an easing in supply concerns, the slide in spot markets also coincided with a reversal in Chinese steel futures having hit the highest level in nearly eight years on Monday.

The most actively traded October 2019 rebar contract fell to 3,780 yuan, while hot-rolled coil futures eased to 3,695 yuan. That flowed through to Dalian iron ore futures where the September 2019 contract slumped 3.2% to 632.5 yuan.

Coking coal and coke futures finished mixed -- the former eased to 1,319.5 yuan while the latter rose to finish at 2,061 yuan.

All five contracts recorded little movement in overnight trade on Tuesday.

SHFE Hot Rolled Coil ¥3,690 , -0.73%
SHFE Rebar ¥3,773 , -0.76%
DCE Iron Ore ¥633.50 , -1.86%
DCE Coking Coal ¥1,316.00 , -0.23%
DCE Coke ¥2,048.50 , -0.12%

Trade in Chinese commodity futures will resume at 11am AEST, one hour before the release of major Chinese economic data that will be headlined by Q1 GDP.

While the GDP report will steal the headlines, bulk commodity markets are likely to be far more interested in the monthly readings on industrial output and urban fixed asset investment that will be released alongside the GDP report.

According to new forecasts from the World Steel Association (worldsteel), global steel demand will reach 1.735 billion tonnes this year, an increase of 1.3% from 2018. Demand is also expected to lift by a further 1% to 1.752 billion tonnes in 2020.

"Global steel demand is expected to continue to grow, but growth rates will moderate in tandem with a slowing global economy," said Mr Al Remeithi, Chairman of the worldsteel Economics Committee.

"Uncertainty over the trade environment and volatility in the financial markets have not yet subsided and could pose downside risks to this forecast.”

For China, both the largest steel producer and consumer globally, worldsteel forecasts that government stimulus will boost steel demand this year before declining modestly in 2020.