Since November 2022, iron ore futures prices have shown a significant upward trend. Industry insiders say that in the short term, there is still some room for iron ore prices to rise; however, the extent of further upside potential remains controversial. They recommend actively using futures instruments to hedge against risks.
　　Three factors are driving up iron ore prices.
　　Iron ore futures prices have recently shown a strong upward trend. According to Wind data, on February 9, the most active iron ore futures contract rose by 2.62%, closing at 863 yuan per ton. Looking at a longer time frame, since the market rally began in November 2022, the most active iron ore futures contract has accumulated an increase of approximately 46.77%.
　　Looking back at the rise in iron ore prices, Peng Bohan, an analyst at Zhongyuan Futures, believes that the increase is primarily driven by the following three factors: First, continuous positive signals from real estate support policies have led to a shift in China’s macroeconomic policy focus toward boosting domestic demand. As economic prospects improve, steel demand has also picked up in tandem, driving iron ore prices higher. Second, low iron ore inventories at steel mills, coupled with pre-Spring Festival restocking efforts, have increased the elasticity of iron ore prices. Third, the sustained rise in international iron ore prices has had a positive impact on domestic prices.
　　Market divergence is intensifying.
　　Regarding the future market outlook, industry insiders believe that, in the short term, iron ore still has some room to rise. However, there is considerable debate among different parties about just how much further upward movement is possible.
　　Xu Jiahao, an analyst at Hengli Futures, believes that from a fundamental perspective, iron ore prices still have some room to rise. In terms of shipments, the first quarter is traditionally a slow season, so port inventory pressures are expected to ease. During the Spring Festival period, steel mills significantly reduced their iron ore inventories; and after resuming production and operations, steel mills will still need to continue replenishing their stocks. However, the magnitude of the price increase in the later stage remains hard to be optimistic about.
　　Ma Liang, an analyst specializing in the ferrous metals sector at Guotai Junan Futures, believes that from the demand side, the market has high expectations for a month-on-month rebound in demand. However, currently, the primary risk lies in whether end-user demand for finished products will actually materialize as expected. On the supply side, the downward support provided by the supply-demand balance and the destocking of inventories have become relatively certain. As for the short-term price trend, with the recent brief rally in coking coal prices, steel profits have been further eroded, thereby limiting the room for iron ore prices to rise further.
　　Actively utilize futures instruments.
　　Regarding how to mitigate the risks posed by fluctuations in iron ore prices to business operations, industry insiders recommend actively leveraging futures instruments.
　　Since 2023, several iron ore upstream and downstream companies, including Zijin Mining and Nangang Shares, have issued hedging announcements. Among them, Nangang Shares stated in its announcement: “In recent years, prices of black commodity products have experienced significant fluctuations, posing substantial challenges to the steel industry’s procurement of raw materials and fuels, sales of steel products, and management of inventories of both steel products and raw materials. To mitigate the impact of these sharp price swings on the company’s normal production and operations, it has become necessary for the company to engage in futures and derivatives hedging activities.”
　　According to Huang Tianchang, a client manager in the market department of Zhongyan Futures, iron ore futures have currently played a significant role in price discovery and risk hedging for the entire iron ore industry. Especially since the establishment of China Mineral Resources Group last year—when iron ore shipments arriving at ports began settling in RMB—the role of iron ore futures in price discovery will become even more prominent, thereby serving as the “stabilizing anchor” for both the entire ore and steel industries.