China: NDRC, ports mull strategy to check iron ore stocks

In its continuing attempt to stabilize iron ore prices, China's central government on Wednesday took aim at ore inventory levels at ports, again.

In a meeting convened with representatives of the China Ports & Harbors Association and some of the country's largest iron ore ports, the National Development and Reform Commission (NDRC) proposed several measures aimed at dissuading iron ore traders from maintaining high stocks, according to an NDRC statement on its official Wechat platform late Wednesday afternoon.

The meeting in Beijing, jointly organized by NDRC and the State Administration for Market Regulation (SAMR), explored several suggestions including shortening the free storage period for iron ore held by trading companies and increasing the storage fee traders must pay to keep their ore inventories portside, to prevent "excessive hoarding".

The NDRC-SAMR delegation also instructed port enterprises to urge iron ore trading companies to draw down their ore stocks to reasonable levels as soon as possible.

The convening of the meeting was another indicator of the central government's determination to challenge the "unusual" rally in iron ore prices recently, when iron ore supply and demand conditions overall were still relatively stable, with iron ore port stocks having climbed to a multiyear high level, the statement showed.

The stocks of imported iron ore at China's 45 ports under Mysteel's regular survey had climbed to 160.3 million tonnes over by February 17, or a highest since June 1 2018, according to the Mysteel's latest data.

According to some market sources contacted by Mysteel who attended Wednesday's meeting, the center piece of the draft discussed by attendees was the suggestion that for iron ore stocks held at port and not belonging to steelmakers for their own use, the period for which the storage fee is waived will be reduced to 60 days, from around 90 days currently.

Once that 60-day gratis period ends, for those ore stocks held by trading companies, the storage fee will be Yuan 0.15 tonne/day ($0.02 t/d) for up to 60 additional days, rising to Yuan 0.3 t/d for 60-120 days, and Yuan 0.5 t/d for over 120 days, according to the draft. For steelmakers, the storage fee for ores held by them will be subject to negotiations between mills and ports and could be lower.

A Shandong-based iron ore trader in East China was cool to the proposal, pointing out that besides traders being able to enjoy free storage for 90 days currently, the fees levied after this period are also lower for now. "Such measures (suggested at the meeting) will increase our iron ore storage cost, and the trading cost in general, especially for the trading between traders," he warned, adding that such a measure would force his firm to reconsider its trading strategy.

The draft indicated that this and other proposals could take effect from April 1, Mysteel Global understands.

"For the trading of some mainstream iron ore products such as PB Fines that are widely used by steelmakers and easy to buy and sell, the effect will be limited," the Shandong trader remarked. "But for some non-mainstream iron ore products where more time may be needed for us to resell, our costs may increase accordingly, so we will be more cautious about trading them," he said.

Over the past two weeks, China's central government has taken a series of steps to take the heat out of rallying iron ore prices in meetings with related parties in the industry chain.

Just last week, for example, NDRC and SAMR had held meetings with two groups of iron ore trading companies to measure their iron ore port stocks and to learn the status of their trading operations in both the physical and futures markets. Meanwhile, the traders had already been asked to trim their ore stocks to "reasonable" levels as soon as possible, as reported.

Market players trading futures on the Dalian Commodity Exchange were unnerved by this latest meeting, with their jitters sending the most-traded May 2022 ore contract lower by Yuan 5.5/dmt from Tuesday's settlement price to close the daytime session on Wednesday at Yuan 700/dmt.

Written by Victoria Zou, zyongjia@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.