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FEATURE: China’s imported iron ore prices at 2-year high

Chinese imported iron ore prices for spot cargoes and in futures contracts are essentially at two-year highs in response to extensive news from major iron ore miners over the past several days warning of disruptions to iron ore supplies. At the same time, the recovery in Chinese steel mills’ iron ore demand plus factors relating to China’s economic outlook are also serving to propel prices higher, according to market sources.
On April 3, the most active iron ore contract on the Dalian Commodity Exchange – namely that for May 2019 delivery – continued its upward climb to finally reach Yuan 690.5/dmt ($103/dmt) when the daytime trading session ended. This was up Yuan 28/dmt on day and also the contract’s highest since March 2017.

Then later on the same day, Mysteel’s price index for 62% Australian seaborne iron ore fines also surged to $92.65/dmt CFR Qingdao, East China – a two-year high if the arbitrary rise on February 8 is ignored. This occurred during the Chinese New Year holiday when almost no actual deals were concluded, Mysteel notes.

“The sentiment of iron ore market participants and speculators has enjoyed a boost over the past few days as several major iron ore miners announced that they were reducing their iron ore production or sales guidance for this year,” a Beijing-based analyst marked. “The succession of announcements led to this little crazy rise in imported iron ore prices.”

On March 28, Brazilian iron ore miner Vale estimated that its sales of iron ore worldwide this year would range between 307-332 million tonnes, lower by 50-75 million tonnes on year due to the impact on sales from the series of closures of its tailings dams and iron ore mines after a dam collapsed in the late January, as reported. 

Soon after that, on April 1, Australian iron ore producer Rio Tinto announced it was lowering its iron ore shipments guidance for 2019 to the lower end of 338-350 million tonnes (100% basis), saying that 14 million tonnes of iron ore production had been affected by Tropical Cyclone Veronica which ravaged the Pilbara coast in Western Australia in late March.

Then one day later, on April 2, BHP said that approximately 6 to 8 million tonnes of iron ore production (100% basis) had been lost by disruptions to its operations from the same cyclone, as Mysteel reported.

Ramp-up supports prices too

“On the other hand, for the time being many Chinese steel mills are in a hurry to procure more iron ore as they prepare to ramp up blast furnace production this month, now that the winter output restrictions were expected to be officially lifted on March 31. This also gave strong support to raw materials prices,” the analyst further explained.

Mysteel’s data shows that on Tuesday, the daily trading volume of imported iron ore inventories at major Chinese ports reached 2.24 million tonnes, higher by a sizzling 62.6% on day.

The Beijing analyst also pointed out that as domestic steel consumption is in the seasonal recovery stage following the winter restrictions, before Chinese steelmakers see a clear slowdown in domestic steel demand they will continue their normal production.

According to Mysteel’s data, the trading volume of construction steel comprising rebar, wire rod and bar-in-coil among 237 trading houses across China is picking up markedly, with the volume on April 2 hitting an 11-month high of 279,196 tonnes/day. Meanwhile, the stocks of five major finished steel items at both Chinese traders and steel mills declined further during the week of March 21-27.

Economic factors also lend support

Apart from the supply-demand fundamentals of the iron ore market itself, some economic factors in China’s capital market are combining to give a fillip to iron ore prices too.

Though China’s economic growth will most likely slow down this year, this prediction has not dented the enthusiasm of speculators whose appetite for trading – be it for bulk commodities, property or stocks – has not waned at all. The reason probably has to do with the central government’s commitment to raising cash flow into the market through measures such as cuts to banks’ cash deposit reserve ratio to support small and micro-sized enterprises, Mysteel understands.

“You can see how these markets with speculative elements have been performing recently, and iron ore, with the supply disruptions confirmed, will probably attract some interest of those keen on hedging – and betting,” a Singapore-based market source said.

Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com