China iron ore prices face downward pressure in Sept

China's prices of imported iron ore will probably track lower this month after August's rise, as the negative margins among steelmakers may weaken their demand for feed materials, Mysteel predicts in its latest monthly report.

By the end of last month, Mysteel SEADEX 62% Australian Fines had risen to $117.95/dmt CFR Qingdao, higher by $7.6/dmt from July 31, while Mysteel PORTDEX 62% Fe Australian fines index had also increased by Yuan 36/wmt ($5/t) on month to Yuan 924/wmt FOT Qingdao and including the 13% VAT as of August 31.

The prices were driven up by the enthusiastic production of blast furnace (BF) steelmakers, the report noted. "Although some mills in North China were required by local authorities to curb sintering operations for the improvement of air quality, their BF production was not affected," it remarked.

In fact, Mysteel's survey showed that during last month, a total of 24 idled blast furnaces were brought back online, with the resumption taking place mainly among mills in North China. As such, the daily hot metal output among the 247 domestic steelmakers under Mysteel's tracking averaged 2.45 million tonnes/day in August, higher by 0.7% on month.

Correspondingly, Chinese steelmakers procured more iron ore from portside markets to meet their increasing production needs, according to the monthly report. During August, the daily iron ore volume transported from the 45 Chinese ports to domestic steel mills averaged 3.19 million t/d, up by 1.91% on month.

However, these mills saw their margins steadily thin last month as the prices of finished steel weakened while ore prices strengthened, the report pointed out. For example, the average loss that steelmakers in North China's Hebei incurred on selling rebar had reached Yuan 258/t by August 31, while at the end of July these mills were able to earn a healthy profit of around Yuan 121/t, according to Mysteel's assessment.

Under such circumstances, this month steelmakers are more likely to rein in production voluntarily to curtail losses, according to the monthly report. In addition, as end-users' steel demand is yet to show any significant recovery, this increased the possibility of steel production cuts, Mysteel noted. This will cause the iron ore demand to weaken and exert downward pressure on ore prices, it predicted.

Meanwhile, September may also see arrivals of imported iron ore decline at domestic ports as several strong typhoons have already buffeted China's coastal areas in recent weeks and more are likely, the report stated. Typically, when such weather events threaten, bulk carriers tend to anchor offshore and operations at ports are suspended, both of which disrupt ore unloading.

As of August 31, imported iron ore stocks at 45 Chinese major ports included in Mysteel's regular survey totalled 121.3 million tonnes, lower by 1.3% on month due to the steelmakers' high demand last month.

"However, the decrease in port arrivals may be slower than the reduction in steelmakers' ore consumption, so iron ore inventories at ports may start to accumulate late this month," the report warned, noting that this will also drag on iron ore prices in September.

Written by Anthea Shi, liye@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.