Iron ore market outlook: **Ready to go, a new high in sight?
The iron ore market has shown strong momentum recently and seems to be preparing to challenge new highs again. The core factors underpinning this trend remain solid – significant basis and tightening expectations. Driven by the good news, iron ore** will be faster and more resilient than other ferrous metal varieties, and this property is likely to continue to be evident in the new year.
Market fundamental analysis
**End-to-end dynamics
Iron ore arrivals remained at a relatively high seasonal level, mainly driven by several short-term factors: higher shipments in the early stage, high forward transactions in early January, and the conversion of some drifting inventories. As iron ore shipments enter seasonal lows in Q1 and Q2, arrivals are expected to gradually decrease but remain at a medium-to-high level.
In terms of regional distribution, Australia's traffic volume decreased year-on-year, especially as FMG's shipments are still recovering after the rail derailment incident. Even without taking into account FMG's shipment volumes, shipment levels in other regions are trending neutral year-over-year.
Demand-side trends
Molten iron production has rebounded as expected in the past two weeks and is expected to remain at around 2.25 million tonnes per day in the next two weeks, while it may rise to 2.3 million tonnes per day at the end of February and early March. However, the number of days of iron ore inventory at steel mills has reached the level of 27 days in the same period last year, suggesting that downstream replenishment may be nearing the end.
Medium-term market outlook
Judging from the period from the post-holiday period to March-April, we believe that there is a greater risk of iron ore, mainly based on cautious expectations of steel demand. It should be noted that iron ore will still be the most important variety of ferrous metals to reflect the favorable macro policy sentiment before the arrival of the next peak season. The recent interest rate meeting and the issuance of PSL in February and March, if there is more than expected good, may push iron ore ** higher again.
At the same time, market sentiment has largely affected raw materials in the current situation of weak demand**. The speed of post-holiday adjustment may be higher than that of finished products, which will lead to the passive expansion of steel mill profits. The rapid seasonal uptick in hot metal production in the second quarter is likely to occur after the ** adjustment.
Investment strategy advice
Although the pre-holiday market is still at a high level**, and there is a possibility of being boosted by macro tailwinds, considering the post-holiday adjustment risk and the limitation of the trading time window, it is necessary to be cautious in chasing long operations. It is recommended to operate with the idea of high position and wide width. In addition, based on the difference in raw material supply expectations, the price ratio of iron ore and coking coal is still on the high side.
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