Iron ore markets experienced wide fluctuations in the first half of 2026, influenced by shifting macroeconomic expectations, geopolitical risks, and changes in mine shipment schedules. However, the underlying logic of a globally loose supply situation has remained unchanged. Spurred by a recovery in steel exports and improved market sentiment, the Singapore iron ore benchmark contract once surged to $111.9 per ton, but the upward momentum subsequently faded, and the benchmark index fell below the $100 per ton mark.

The US June CPI and PPI data both came in significantly lower than market expectations. Previously, influenced by the Federal Reserve's relatively hawkish stance, expectations for a July rate hike had increased. However, the broadly weaker US inflation data in June has temporarily eased market concerns about rapid monetary policy tightening, leading to a reassessment of global interest rate expectations.

Nevertheless, significant divergences remain in the current macroeconomic landscape. While inflation is cooling, geopolitical conflicts in the Middle East have intensified again, driving a rapid surge in international oil prices. High energy prices have prompted the Bank of England and the European Central Bank to begin reassessing the risks of further interest rate hikes.

Overall, a single month of weak inflation data is insufficient to reverse the market's expectations for Federal Reserve tightening. The potential risks of policy tightening within the year have not been fully priced out and may continue to exert downward pressure on commodity valuations in the medium to long term.

Global Supply Estimates Revised Upwards

The market is now in the FY27 financial year (July 2026 to June 2027). As of July, two major Australian miners, BHP Group Ltd (ASX: BHP) and Fortescue Ltd (ASX: FMG), have issued their official FY27 iron ore shipment guidance. Rio Tinto Ltd (ASX: RIO) has not yet updated its specific FY27 target and is maintaining its 2026 production and sales goals. Vale SA has not released its official 2027 production plan, and market forecasts are based on the ramp-up progress at its mines.

Leveraging the continued production ramp-up of its Iron Bridge magnetite project, FMG has raised its FY27 shipment range from 195-205 million tons to 200-210 million tons. Its actual shipments in FY26 were close to 199 million tons. BHP's guidance for its Western Australia Iron Ore operations on a 100% basis is 286-298 million tons for FY27, an increase of approximately 2 million tons from FY26, when actual production was 291.2 million tons, indicating high certainty of stable production at its main operations.

Vale uses a calendar year for production statistics. The increased production of fines from the expansion of its Carajás mine is expected to offset the decline in pellet output. Institutions generally estimate that its total iron ore production for 2027 will be revised upwards by 5 million tons to a range of 340-350 million tons. Rio Tinto's Pilbara iron ore shipments on a 100% basis are expected to be 323-338 million tons. Its existing capacity in Australia lacks supply flexibility and faces pressure from natural depletion at older mines. According to market calculations, shipments from the Simandou project in Guinea could reach 12-15 million tons in FY27. The incremental supply of high-grade ore from West Africa is gradually offsetting the reduction from aging Australian mines, reshaping the global iron ore supply structure.

Concentrated Capacity Release in West Africa

In the first half of 2026, supply from non-mainstream global iron ore sources expanded significantly. According to Mysteel statistics, non-mainstream miners shipped a cumulative 153 million tons in H1, a year-on-year increase of 21.31 million tons, or 16.2%, making them the primary source of incremental global iron ore supply. The high benchmark index from March to May, combined with premium freight rates, provided ample profit margins for non-mainstream miners, stimulating concentrated production increases in West African producing regions like Guinea, Liberia, and Sierra Leone, as well as South American regions like Peru, Chile, and Venezuela.

The continued ramp-up of new iron ore capacity in West Africa, represented by the Simandou project in Guinea, is optimizing the global supply mix. With the commissioning of new supporting equipment at Simandou, outbound logistics efficiency has significantly improved. Exports reached 2.2 million tons in May, with a weekly shipment peak hitting 974,000 tons. Starting in June, West Africa entered its traditional rainy season, leading to a seasonal slowdown in shipment rates, but the overarching trend of annual capacity ramp-up remains unchanged. Institutions estimate Simandou shipments could exceed 20 million tons in 2026.

In summary, with BHP and FMG raising their shipment guidance midpoints, Vale's production estimate being revised up by about 5 million tons, and Simandou output increasing, the global seaborne iron ore supply remains on an expansionary path even after offsetting reductions from Rio Tinto. The current benchmark index below $100 per ton is gradually approaching the cost line for non-mainstream miners. If prices fall further to around $90 per ton, some smaller and medium-sized mines with higher marginal costs will face pressure, and high-cost capacity may be the first to reduce shipments. Against a backdrop of global oversupply and persistently high domestic port inventories, the overall loose supply situation for the year is unlikely to change.

Exacerbated Regional Divergence in External Demand

Global manufacturing exhibited a typical K-shaped recovery in the first half of the year. The US manufacturing recovery led the world, with the ISM Manufacturing PMI remaining in expansionary territory for six consecutive months. Sustained expansion in capital expenditure within the AI industry chain has driven steady demand for industrial equipment and electronic components, becoming the core driver supporting robust US manufacturing activity.

The overall recovery momentum in European manufacturing remains weak, with varying degrees of recovery across economies. Germany's Manufacturing PMI has fluctuated within the 49%-52% range for an extended period, France's manufacturing recovery lacks stability, while the UK's Manufacturing PMI trend has been relatively stable within the 51%-54% range. Overall, the limited strength of the European manufacturing recovery makes it difficult to effectively boost regional demand.

Manufacturing sentiment across Asia is generally stable and improving. India's Manufacturing PMI has remained at a high level of 54%-57%, Japan's manufacturing sector is steadily improving (June PMI rose to 54.8%), and the PMIs for South Korea and Vietnam stabilized around 52% in June. The recovery of the global electronics supply chain continues to support the repair of East Asian supply chains and manufacturing.

Overall, global manufacturing experienced moderate expansion in the first half, with structural divergence being a prominent characteristic.

China's Steel Exports: A Pattern of Initial Weakness Followed by Strength

China's steel exports in the first half of 2026 showed a pattern of "initial weakness followed by strength and continuous recovery." Cumulative steel exports from January to June were 54.87 million tons, down 5.6% year-on-year, dragged down by the high base from the previous year. The export license management system implemented at the start of the year significantly suppressed exports, with monthly export volumes from January to April failing to reach the 10-million-ton level.

The steel export market recovered in May, with export volume reaching 10.341 million tons, narrowing the year-on-year decline to 2.24%. June exports were 10.32 million tons, a year-on-year increase of 6.60%. The fading impact of policies, resilient foreign demand coupled with supply gaps, and the price competitiveness of Chinese steel have collectively driven the sustained recovery in China's steel export volumes.

In the second half of the year, domestic end-user demand lacks upward momentum. Foreign market demand is regionally divergent and local production capacity is gradually recovering. Steel exports are likely to remain relatively weak, and full-year steel export volume may see a slight year-on-year decline.

Hot Metal Production Peaks and Declines

In the first half of 2026, the average daily hot metal output from 247 sampled steel mills in China fluctuated between 2.27 million and 2.43 million tons. Concentrated blast furnace restarts in the second quarter drove a continuous recovery in hot metal output, which peaked at 2.4325 million tons in early July. In mid-May, finished steel prices improved, leading to a temporary recovery in profits for the sampled mills. Subsequently, coking coal supply contracted, multiple rounds of coke price increases were implemented, leading to a significant rise in raw material costs for steel mills and a rapid decline in profits.

In July, weakening steel demand led to a continued sharp contraction in steel mill profit margins. An increasing number of mills proactively arranged blast furnace maintenance, causing daily hot metal output to decline. Steel mills are squeezing upstream profits by lowering purchase prices and slowing raw material restocking, indicating a shift in the industry chain's driving logic. The implementation of the first round of coke price cuts will be a key focus going forward.

Looking at end-user demand, data from the National Bureau of Statistics shows that national fixed asset investment from January to June fell 5.7% year-on-year. Within this, real estate development investment dropped 18% year-on-year, constituting the core factor dragging down steel demand. Infrastructure investment fell 2.4% year-on-year, with the release of physical workloads being slow. While special bond issuance will provide some support for infrastructure steel demand in H2, it is unlikely to fully offset the reduction from the real estate sector. Manufacturing investment fell 1.2% year-on-year, marking two consecutive months of negative growth. If export orders do not show significant improvement in H2, manufacturing steel demand in Q3 may decline further.

In summary, seasonal declines in shipments from mainstream miners in July, potential strike expectations at BHP, rising international oil prices, and a slight drawdown in port inventories have provided some support to iron ore prices by easing short-term supply-demand pressures. However, concentrated maintenance at steel mills in July is suppressing rigid demand for iron ore. Combined with the constraint of high port inventories, the current price increase may be a short-lived rally with limited upside.

From a medium to long-term perspective, the logic of ample supply continues to strengthen, with capacity from West African mines, primarily Simandou, being steadily released. Domestically, the real estate sector's recovery remains weak, and manufacturing steel demand is marginally weakening. The overall iron ore supply-demand surplus for the year remains unchanged. The benchmark index is expected to trade within a range of $85-$105 per ton in the second half of the year. In terms of strategy, physical market participants could consider hedging operations near the upper end of the range, maintaining an overall bearish outlook.