In early October, iron ore prices experienced a short-term rebound, mainly due to the expected improvement in demand margins and the stimulus of rising ocean freight prices. However, as steel mills strengthened their production restrictions and at the same time, ocean freight rates fell sharply. The price hit a new low during the year. In terms of absolute prices, the price of iron ore this year has fallen by more than 50% from the high point, and the price has already fallen. However, from the perspective of supply and demand fundamentals, the current port inventory has reached the highest level in the same period in the past four years. As the port continues to accumulate , This year's weak iron ore prices will be difficult to change.

There is still an increase in mainstream mine shipments

In October, the iron ore shipments in Australia and Brazil decreased year-on-year and month-on-month. On the one hand, it was due to mine maintenance. On the other hand, the high sea freight had affected the delivery of iron ore in some mines to a certain extent. However, according to the fiscal year target calculation, the four major mines' supply in the fourth quarter will have a certain increase year-on-year and month-on-month.

Rio Tinto's iron ore output in the third quarter decreased by 2.6 million tons year-on-year. According to Rio Tinto's annual target of 320 million tons, the output in the fourth quarter will increase by 1 million tons from the previous quarter, and it will decrease by 1.5 million tons year-on-year. BHP's iron ore output in the third quarter decreased by 3.5 million tons year-on-year, but it maintained its fiscal year target of 278 million-288 million tons unchanged, and is expected to improve in the fourth quarter. FMG shipped well in the first three quarters. The output in the third quarter increased by 2.4 million tons year-on-year. In fiscal year 2022 (July 2021-June 2022), the iron ore shipment guidance was maintained within the range of 180 million to 185 million tons. A small increase is also expected in the fourth quarter. Vale's production in the third quarter increased by 750,000 tons year-on-year. According to the calculation of 325 million tons for the whole year, the production in the fourth quarter increased by 2 million tons from the previous quarter, which will increase by 7 million tons year-on-year. In general, the iron ore output of the four major mines in the fourth quarter will have an increase of more than 3 million tons on a month-on-month basis, and a year-on-year increase of more than 5 million tons. Although low prices have some impact on mine shipments, mainstream mines still remain profitable and are expected to achieve their full-year targets without deliberately reducing iron ore shipments.

In terms of non-mainstream mines, starting from the second half of the year, China’s iron ore imports from non-mainstream countries have decreased significantly year-on-year. The price of iron ore fell, and the output of some high-cost iron ore began to decline. It is therefore expected that imports of non-mainstream minerals will continue to decline year-on-year, but the total impact will not be too great.

In terms of domestic mines, although the production enthusiasm of domestic mines is also declining, considering that the production restrictions in September are very strong, the monthly iron ore output in the fourth quarter will basically not be less than that in September. Therefore, domestic mines are expected to remain flat in the fourth quarter, with a year-on-year reduction of around 5 million tons.

In general, there was an increase in the shipments of mainstream mines in the fourth quarter. At the same time, considering that overseas pig iron production is also declining month-on-month, the proportion of iron ore sent to China is expected to rebound. Therefore, iron ore sent to China will increase year-on-year and month-on-month. Non-mainstream mines and domestic mines may have some decrease year-on-year. However, the room for the month-on-month decline is limited. The total supply in the fourth quarter is still increasing.

Port inventory is maintained in a state of accumulation

The accumulation of iron ore in ports in the second half of the year is very obvious, which also indicates the loose supply and demand of iron ore. Since October, the accumulation rate has accelerated again. As of October 29, the port's iron ore inventory has increased to 145 million tons, the highest value in the same period in the past four years. According to the calculation of supply data, the port inventory may reach 155 million tons by the end of this year, and the pressure on the spot will be even greater by then.

Support on the cost side begins to weaken

In early October, there was a slight rebound in the iron ore market, partly due to the impact of rising ocean freight prices. At that time, the C3 freight from Tubarao, Brazil to Qingdao, China was once close to US$50/ton, but there has been a significant drop recently. The freight has dropped to US$24/ton on November 3, and the sea freight from Western Australia to China is only US$12. /Ton. The cost of iron ore in mainstream mines is basically below US$30/ton. Therefore, although the price of iron ore has dropped significantly, the mine is basically still profitable, and the cost-side support will be relatively weak.

On the whole, although the price of iron ore has hit a new low during the year, there is still room below whether it is from the perspective of supply and demand fundamentals or from the cost side. It is expected that the weak situation will remain unchanged this year. However, it is expected that the disk price of iron ore futures may have some support near 500 yuan/ton, because the spot price of super special powder corresponding to the disk price of 500 yuan/ton is near 320 yuan/ton, which is close to the lowest level in 4 years. This will also have some support in cost. At the same time, under the background that the profit per ton of steel disk is still high, there may be funds to short the snail ore ratio, which indirectly supports the price of iron ore.