Iron ore prices firmed for much of last week, supported by firming steel prices in China and declining port stocks. Risks are skewed to the downside for iron ore over the next few months. Our concerns revolve around the timing of slowing Chinese steel demand while seaborne iron ore supply continues to rise. Chinese steel mills are also extending annual maintenance programs in light of weak demand conditions. A fresh headwind has been a government order to shut steel capacity in the Beijing region ahead of important World War II victory parades in early September. The closures could shutter 10 million tonnes of annual steel capacity, or about 15 million tonnes of iron ore. This should mean higher iron ore port stock holdings and lower prices. Expect seaborne prices to breach USD50/tonne and trade in the higher USD40/tonne range in the coming months.
