China steel demand pushes iron ore prices; here’s why

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Major supports are seen in this week, where 6 percent of gains have been seen but month-on-month (MoM) for the month of August, the prices are still down by 25 percent and are negative for the year 2021.

The recent support has come in on the hopes of picking up of demand for steel from China and from the rest of the world as well.

Improvement in steel profit margins is what seems to be supporting – at $200 plus kind of levels, the margins have started to take a hit for the manufacturing companies and for the steel producers as well.

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In case of iron ore prices, the expectation is that the margins will improve. At these lower prices, there is restocking happening as well, there is buying coming in not just for the physical buyers but for the financial buyers as well.

Hike in bond purchases or issuance from the local authorities also has been quite supportive. Looking at the last week, in case of China, 600 billion yuan worth of notes were sold and much of this money usually tends to go into infrastructure. So that clearly would work in favour of the ferrous metal prices there.

In terms of the China production numbers, steel production numbers in the last 15 days have seen a surge by nearly 4.6 percent and that clearly has been supportive as well.