ACCOUNT PROFILE

China iron ore fundamentals still weak in Feb?

Posted on 05 February 2021

China’s iron ore market is likely to see supply and demand both weaken this month, according to Mysteel’s latest monthly report released on February 1, suggesting that iron ore prices may continue to fluctuate but will lack support to move up substantially.

 

Regarding iron ore supply, total shipment volumes arriving at Chinese ports this month will see a slight reduction compared to January’s result, the report predicted, given that wet season weather is impacting both Australia and Brazil, with those countries’ iron ore deliveries being affected by the seasonal factors.

Meanwhile, domestic iron ore concentrates supply is also expected to dip this month compared to the volume in January as some domestic iron ore miners are conducting maintenance or have suspended production temporarily for the Chinese New Year (CNY) holiday (over February 11-17).

At the same time, domestic ore demand is seen softening this month, as molten iron output is likely to decline – albeit by just a limited extent, the report noted. The prediction assumes that many steel mills’ production will continue to be undermined by the squeezed margins the mills are getting for their finished steel, at least ahead of the CNY holiday. 

According to Mysteel’s survey, many mills had planned to carry out maintenance programs from January through to the CNY break, and that some maintenance stops have now come to an end. But in view of the steelmakers’ thin profits, any broad recovery in molten iron output is not expected until after the holiday when domestic steel demand is seen resuming. 

By the final week of last month over January 22-28, blast furnace capacity utilization among the 247 Chinese steel mills Mysteel canvasses weekly had dipped for a fourth straight week, easing by 1.55 percentage point on week to 90.53%, though still higher on year. 

Meanwhile, most of the steel mills have procured sufficient volumes of iron ore to meet both their current consumption and that for their continued production during the CNY holiday when most ore-trading firms will be closed and the logistics will have slowed, as reported.

As of January 28, inventories of imported iron ore at the 247 steelmakers nationwide had also swelled to around 123 million tonnes, up 8.3 million tonnes from the volume on December 31, and these stocks were sufficient for around 41.2 days of operations at their present daily consumption rate, up 3.42 days more than over the previous period, according to Mysteel’s latest data.

In addition, Mysteel forecasts that the volume of iron ore port inventories will see some increase in February, as a result of the softening demand around the CNY break, as well as that the severe congestion at some ports currently will gradually ease amid the improved weather conditions, the report noted, which will lead to more ore resources unloaded and ready to flow to the market.

By January 28, the total imported iron ore stocks at China’s 45 ports had grown for the third week to reach 125 million tonnes, or up 847,600 tonnes from the volume as of December 31. In parallel, a total of 201 iron ore vessels were queuing at the 45 ports for unloading, or 43 more than over the prior survey period, according to Mysteel’s monitoring. 

The weakening in both demand and supply, thus, will inevitably weigh on iron ore prices, it observed. 

During January, active ore buying among Chinese steel mills led ore prices to experience a round of rises. Mysteel’s PORTDEX 62% Fe Australian Fines averaged Yuan 1,147.7/wmt ($177.5/wmt) FOT Qingdao and including the 13% VAT last month, surging by another Yuan 101/wmt or 9.7% on month, while the SEADEX 62% Fe Australian Fines averaged $167.83/dmt CFR Qingdao, also up another $12.08/dmt or 7.8% on month.

In contrast, the national price of HRB400 20mm dia rebar averaged Yuan 4,375/tonne including the 13% VAT in January, higher on month but just Yuan 142.6/t or 3.4% on month, according to Mysteel’s data.

Source : Mysteel Global