FEATURE: Iron ore price trend? Depends who’s talking
Source: Mysteel
Mar 13, 2019 11:30
“The Chinese economic growth is experiencing a slow-down now, which may weigh on domestic steel demand, while from the steel supply side, the anti-pollution measures in force in many communities may continue to hinder the blast furnace operations among Chinese steelmakers, and high iron ore prices will only drive mills to consume more steel scrap,” Cao told the industrial newspaper.
“China’s steel supply, therefore, may still be likely to be a surplus to demand this year, and finished steel margins will remain thin over the longer term,” CMN quoted Cao as saying. Translated, Cao was warning that if mill margins remain scant, iron ore suppliers can’t continue charging high prices for their ore.
Vale’s iron ore supply gap to be filled up with little difficulty
Cao speaks with some authority, too, as his Valin Group, located in Central China’s Hunan province and included among China’s top ten steel enterprises, boasts a crude steel capacity of around 22 million tonnes/year, Mysteel notes.
Landed prices of Australian iron ore in China have fluctuated over the past two months but as of March 11, Mysteel’s price index for 62% Australian fines for seaborne cargoes was still at a high of $83/dmt CFR Qingdao, up $7.8/dmt from January 25, the day when Vale’s tailings dam collapse happened.
Warming to his theme, Cao suggested that if iron ore prices were to remain high (and thus, attractive to miners) this might prompt Chinese domestic iron ore miners and some small-sized foreign iron ore miners to lift their output for 2019, especially the Vale’s dam accident has fueled speculation about possible tightness in iron ore supply this year.
This scenario prompted the CEO to anticipate with confidence that the possible 24 million tonnes of iron ore supply shortfall gap could well be filled up with many other sources of supplies including the inventories at the Chinese ports.
Mysteel’s latest weekly survey released on March 8 did suggest the great possibility, despite the Vale accident, imported iron ore inventories at 45 major Chinese ports rose for a fourth consecutive week to a six-month high of 147.5 million tonnes as of March 7.
For good measure, Cao argued that it was unsustainable for iron ore suppliers to earn healthy profits when their customers among the steelmakers and steel end-user industries such as the automobile and white goods manufacturers are currently struggling with tiny profits. “Since iron ore margins are already at high levels, the continuing rise in iron ore price is unreasonable,” he said.
Cao also noted that for Chinese steel mills’ iron ore procurement now, many mills have tended to consume more lower-grade iron ore products and non-mainstream products mainly due to the low finished steel margins, which, in perspective, suggests that supplies of higher-grade iron ore products such as Carajas fines from Vale and Chinese iron ore concentrates are probably sufficient this year, he declared.
Of course, as a steel industry representative, Cao might be expected to paint a bleak picture of the industry and highlight the negative – with an eye on raw materials prices.
Iron ore stocks crucial for price movement in near term
A Beijing-based iron ore analyst explained that in the near-term, the 62% imported iron ore price may fluctuate around $80-85/dmt CFR China – similar to Gao’s view – with $80/dmt CFR China being the bottom. “At the same time, the production curbs and low profit margins are causing many steel mills to become reluctant to buy more iron ore. If this trend persists, it will cap the high prices for a while,” he told Mysteel Global.
The analyst also foresaw iron ore supplies in the Chinese market this year to be short after Vale’s dam accident. Thus, the level of iron ore inventories at Chinese ports will become very crucial this year.
“If the port inventories drop too much, this will serve to drive ore prices surging up again,” he warned. He calculated that the shortage in iron ore supply this year will be at least 20 million tonnes, with high ore prices being the only factor releasing the increment in supply.
Another Shanghai-based industry insider presented a scenario where iron ore prices could start trending upward, and quite soon, when Chinese steel mills gradually ramp up their production to normal levels in April after the official expiration of winter restrictions on their blast furnace operations.
“Meanwhile, many Chinese steel mills are retaining relatively low internal stocks of ore at their plants. Therefore, when ramping up their production, they will need to procure iron ore, and it’s hard to envisage a situation where the ore price will dip with the added demand,” he told Mysteel.
“Moreover, first quarter usually sees fewer iron ore shipments from both Australia and Brazil due to weather factors, which may further ferment bullish market sentiment,” he added.
Mysteel’s data showed that the stocks of imported iron ore sintering fines at 64 Chinese steel mills under Mysteel’s bi-weekly survey continued to dip over February 15-27, falling by another 721,100 tonnes or 4.2% on fortnight to a near two-month low of 16.4 million tonnes as of February 27.
Mysteel’ latest shipment data also showed that iron ore shipments from Australia and Brazil to worldwide reversed down remarkably over March 4-10 by 4.2 million tonnes or 17.4% on week to about 20 million tonnes.
Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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