CONF: China mills, traders cautious in stocking iron ore

Both the Chinese steel mills and traders have been very cautious in taking in more iron ore stocks with many steelworks opting for low stocks on hand and making greater efforts in controlling production costs via various means, panelists shared at the 14th Mysteel International Iron Ore Market Seminar in Qingdao, East China’s Shandong province, on June 11.

“Running at relatively low iron ore stocks at our works has been our strategy for long,” said Mao Hui, deputy general manager of Shandong Laiwu Steel International Corp in East China. “Of course, sufficient stocks to guarantee smooth and steady operation has been the priority when scheduling our raw materials procurement,” he added.

He shared that changing the mix of iron ore feedstocks has been efficient in controlling stocks volume and costs. “We have trimmed the regularly-used iron ore products from over ten to seven or eight, as well as checking out more non-mainstream iron ore products into account, as their prices are not so sensitive to the price fluctuation,” he said.

On top of all these, the steel mill has procured slightly more iron ore from ports while maintaining a certain proportion of long-term supply deals with miners for the former’s flexibility in procuring compared with seaborne cargoes in the aspects of quantity, payment terms and such.

Meng Xiaofeng, director of raw materials department of Shanxi Jianbang Group in North China confirmed the mill’s iron ore stocks have been relatively higher after the cumulative buying in April, but they are prepared to reduce the level anytime in accordance with the domestic steel demand in the months to come.

Mysteel’s latest bi-weekly survey showed that imported iron ore sintering fines stocks at China’s 64 steelmakers increased by 337,600 tonnes on week to around 16.6 million tonnes as of June 10, which was, however, still 292,900 tonnes lower on year.

Other than the common practice among the Chinese steel mills to be cautious in iron ore procurement to maintain low stocks in 2020, many iron ore traders have also been more conscious of their stocks, especially after the hard lesson learned last July-August when they were holding onto high stocks during a price slump, other panelists shared.

Last July-August, Mysteel’s SEADEX 62% Fe Australian Fines free fell from its nearly 5.5-year high of $127.15/dmt on July 3 to $81.25/dmt on August 29, both in terms of CFR Qingdao, according to the data.

“Despite overall confidence on iron ore prices in the near term, most of us dare not stock up too much on hand, as high volumes means high risks,” admitted Liu Diping, deputy general manager of Iron Ore Division of Xiamen ITG Holding Group in Southeast China’s Fujian. “Nowadays, many Chinese traders tend to hold onto some volumes but only for a short time while for some gains, no one dares to bet on higher prices beyond a reasonable time frame,” he added.

Wang Ning, chairman of Shandong Wangteng Steel in East China, also noted that his company has changed the focus to risk management than maximum profits via trading large quantity of ore, and the company has also learned to mix iron ore products in their stocks.

Besides, “We plans to do more study on different iron ore products and brands, in order that we can buy a certain product or brand when its price is below normal range or sell one when its price higher than normal range. This can enable us to make money more accurately,” he added.

Relatively low iron ore stocks at both the steel mills and traders while the high steel output at present make it unlikely for iron ore prices, especially those of mainstream iron ore products and brands, to nosedive in the near term, according to Liu.

As of June 11, blast furnace capacity utilization rate among China’s 247 steel mills touched an alarmingly high of 92.35%, having risen for thirteen consecutive weeks or 1.78 percentage points higher on year, according to Mysteel’s data, and Mysteel’s SEADEX 62% Fe Australian Fines, as a result, hovered at its 10-month high or above $100/dmt CFR Qingdao since May 29.

Written by Victoria Zou, zyongjia@mysteel.com

Edited by Hongmei Li, li.hongmei@mysteel.com