China's oversupply of imported iron ore to stay in Oct'21 - Mysteel

China's market for imported iron ore will likely continue to be oversupplied this month, though any further plunge in iron ore prices should be relatively limited, according to Mysteel's latest monthly report released on October 3.

During this month, Mysteel expects that iron ore stocks at Chinese ports to see further growth, given that iron ore shipments from Australia increased in September. As of September 30, the inventories of imported iron ore at the 45 major Chinese ports under Mysteel's regular surveys had swollen to 133.2 million tonnes or up 4 million tonnes from the volume as of August 26.

According to Mysteel's data, global iron ore shipments last month increased by 2.22 million tonnes on month to 138 million tonnes, with the average daily shipments also being the highest level so far this year. Among all, supplies from Australia to global markets increased by 4.96 million tonnes to 80.68 million tonnes, offsetting the dip in iron ore shipments from Brazil and other countries.

In China this month, much of the northern part of the country will gradually enter the winter 'heating' season (generally October-March), during which local governments normally require steelmakers and other heavy industry enterprises to curtail production as part of urban smog-reduction measures. These curtailments - impacting iron ore demand - will merge with the current production restraints aimed at reducing energy consumption and energy intensity, further weakening demand for iron ore.

With domestic pig iron output remaining at low levels or even dipping further, accordingly overall iron ore demand will continue to be depressed, the report explained.

Last month, Chinese pig iron output dropped further amid the large-scale and intensive production curbs, especially in East China's Jiangsu, with Mysteel's survey showing that daily molten iron output had declined to an average of 2.11 million tonnes/day over September 24-30 - a low since early October 2020.

Meanwhile, during last month, the congestion of bulk carriers at many ports remained very serious, and was aggravated by adverse weather such as strong winds and heavy rain. By September 30, there were still 194 vessels queuing at the 45 sampled ports, still a rather high level.

Under these circumstances, China's iron ore market this month will likely remain in oversupply. However, the report suggests that any significant fall in ore prices in the near future is difficult to envisage. For example, freight charges for dry bulk vessels - a major component in iron ore costs - continue to soar and this will help support ore prices, the report noted. This trend needs to be monitored in the current month, it adds.

As of September 30, the Baltic Exchange Capesize Index, the key indicator of freight rates for Capesize dry bulk carriers usually at 100,000 deadweight tonnes and above, had surged to a 13-year high of 9,066 points, up 3,147 points from August 31.

As for the daily freight charges, those for iron ore vessels to 170,000 tonnes travelling between Port of Dampier in Western Australia and China's Qingdao port had climbed to $22.7/tonne as of September 30, up $7.7/t or 52% on month, according to Shanghai Shipping Exchange data. Meanwhile, the freight rate between Brazil's Tubarao and Qingdao also increased by $10/t or 28% on month to $45.7/t.

Meanwhile, another issue requiring careful monitoring will be whether the steelmakers' demand for different iron ore products changes amid the higher steel margins and the unsettled production, the report notes, pointing out that any divergence here might affect ore price movements too.

Last month, the weak demand for ore saw imported iron ore prices dive further, with Mysteel SEADEX 62% Australian Fines falling to as low as $90.9/dmt CFR Qingdao over September 20-21, a 20-month low. By September 30, the index had recovered to $116.45/wmt but was still $40.2/dmt lower on month.

Written by Victoria Zou,zyongjia@mysteel.com

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