Big Rise in China Iron Ore Prices Unlikely, for Now

Chinese prices of imported iron ore are unlikely to see any significant rise in the near term, considering that consumption among Chinese steel mills may continue being constrained amid the rather slow recovery in domestic finished steel demand due to the Novel Coronavirus Pneumonia (NCP) outbreak, market sources commented on Wednesday. In fact, some participants quizzed by Mysteel Global were more bearish, predicting that prices were headed south.

As of February 18, Mysteel's SEADEX 62% Fe Australian iron ore fines price had rebounded to $88.8/dmt CFR Qingdao from its recent low of $79.9 recorded on February 3. Meanwhile, Mysteel's PORTDEX 62% Fe Australian iron ore fines index had also recovered to Yuan 648/wmt ($92.39/wmt) FOT Qingdao including the 13% VAT on the same day, from the low of Yuan 604/wmt on February 10.

"The recent rise in price will gradually approach its end. Then the price will largely stay trending downward during the near future," an iron ore procurement official with a Shaanxi-based steelmaker in Northwest China commented.

According to him, the rather high stocks of finished steel accumulated over the past several weeks when most steel mills' production remained largely stable is a big issue, especially when domestic finished steel demand will see a slower recovery in the near future. This is because considerable time will be needed for those domestic steel-consuming enterprises, logistics companies and building contractors now gradually resuming operations to bring these back to normal levels.

"During the period when steel stocks are being digested, steel prices may soften, which may prompt some blast furnace steelmakers to be either voluntarily reduce their production or be forced to. Thus, iron ore demand may still be weak," he remarked.

As of February 12, inventories of the five major finished steel items comprising rebar, wire rod, hot rolled coil, cold rolled coil and medium plate at the 184 Chinese steel mills canvassed under Mysteel's weekly survey shot up for a sixth straight week to reach a near five-year new high of 11.5 MnT. At the same time, stocks of these major finished steel products held by traders in 35 major cities also hit 18.9 MnT as at February 13, or a new high since March 14 2018.

For the Shaanxi steelmaker, recent news about reductions in supplies of imported iron ore was seen as having limited impact on the overall iron ore market, compared with issues on the demand side.

On Monday, Anglo-Australian miner Rio Tinto announced in its latest quarterly report that it had decided to lower its Pilbara iron ore shipments guidance for 2020 to 324-334 MnT from its previous guidance of 330-343 MnT, as reported. The miner was confirming that Tropical Cyclone Damien's recent pummelling of the Western Australian coast had caused damage to its Pilbara network.

A week ago, Vale, the giant Brazilian iron ore miner, also disclosed that heavy rain had disrupted production and transportation at its mining systems, which the company expected would reduce its iron ore fines output by approximately 1 MnT.

Commenting on the adjustments to these miners' annual guidance, a Shanghai-based iron ore analyst with a futures company said the announcements might represent short-term positive news for prices of imported iron ore in China, news which had been reflected in prices over the past several days.

"Last week's rises in ore prices occurred because steel production among domestic steelmakers had remained relatively stable over the past several weeks, also amid some bullish news on fundamentals," another iron ore analyst with a Fujian-based futures company in Southeast China added.

Nevertheless, he also expressed concerns about possible reductions to steel production due to transportation disruptions in the near term, and the weak steel prices in a longer term, which he warned will weigh on iron ore demand in the near future.

"From my view, the iron ore price may ease. At the least, any room for a further rebound is limited," the analyst predicted.

For the time being, iron ore traders may be the most upbeat among all market participants regarding the potential for iron ore demand and prices, Mysteel noted.

"We are seeking opportunities to hold some stocks at hand in seaborne iron ore market when prices seem reasonable to us," an Australia-based iron ore trader said.

According to him, some ore traders handling seaborne cargoes are relatively active these days in buying mainstream iron ore products such as PB Fines and Carajas Fines, as they expect that demand among Chinese steelmakers will gradually recover in coming months as more steel-consuming industries nationwide reopen for business.

"Currently, the relatively low price of ore compared to last year might be a chance for some iron ore traders. Thus, the price may not decline by too much - though it may not rise too much either!" he added.

As of February 16, iron ore stocks at ports nationwide held by the 26 iron ore traders Mysteel regularly monitors stood at 17.44 MnT, higher by another 1.1% on week.