Posted on 02 Nov 2020
Persisting high domestic coke prices are causing Chinese steel mills to show limited interest in buying iron ore lumps, with the lump price keeping relatively weak compared with prices of other iron ore products, according to market sources on Friday.
As of October 29, Mysteel’s assessed price for 62.5% grade iron ore lump premium against 62% fines remained frozen at $8.85/dmtu, unchanged since late September.
As for port inventories, the price of 62.5% PB Fines at Rizhao port, for example, stood at Yuan 915/wmt ($122/wmt) on the same day, down Yuan 18/wmt on week, while the price of 64.5% India-origin pellets was lower by a smaller Yuan 2/wmt on week at Yuan 1,017/wmt, both FOT and including 13% VAT.
“The trading of iron ore lumps in the seaborne iron ore market has been sluggish recently, with very few buyers interested in such kinds of products,” a Shanghai-based iron ore trader commented. “Some steelmakers are tending to shun iron ore lumps to save on their overall raw materials costs, considering the rather high prices for merchant coke these days,” he explained.
A Shanghai-based iron ore analyst also observed that lump demand among steelmakers currently was weaker than had been previously expected, especially compared to iron ore pellets, which he also said was largely due to the high coke prices.
Normally during winter in China, especially in the northern half the country, many local governments impose stringent restrictions on industrial activity – including on steelmaking operations such as sintering – to reduce atmospheric pollution and safeguard air quality. Experience over the previous several years shows that demand for lump and pellet, being alternatives to sintered ore, will largely increase to allow mills to maintain stable steel output.
But despite the higher production efficiency lump promises due to its higher Fe content, reducing lump in the blast furnace is a high-energy, high-cost process compared to using sinter feed and pellet, and leads to higher coke utilization rates, Mysteel Global notes.
However, since the second half of August Chinese coke makers have pushed through five rounds of price increases totalling Yuan 250/tonne up to the end of last week. Those mills reliant on merchant coke were forced to agree to pay more, mainly due to the supply tightness amid production cuts and coking-capacity replacement measures in East China’s Shandong province, and in North China’s Shanxi and Hebei provinces, as Mysteel Global reported.
As of October 29, China’s national coke pricing index had grown to Yuan 2,014/tonne including 13% VAT, up another Yuan 3.1/t on week and refreshing its high since August 23 2019, according to Mysteel’s assessment.
Industry watchers say a sixth price hike – also of Yuan 50/mt – is very likely in the near term, as buyers have limited options but to accept any rise.
A consequence of the weak demand but relatively sufficient overseas supplies of lump is that port inventories of this ore continue growing, with the volume up to 25.8 million tonnes as of October 29, a historical high since the Mysteel first conducted this survey in December 2015. Inevitably, the enormous inventory is also putting lump prices under great pressure too, Mysteel Global noted.
Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
Source:Mysteel Global
