Chinese iron ore demand to stay firm in Sept

China's iron ore market is likely to see demand remain steady this month, with support derived from steelmakers resuming production, now that their margins are positive, according to Mysteel's latest monthly report. But any growth in ore demand will hardly be significant, respondents suggested.

Although improvements in finished steel demand this month are yet to be proven, steel mills will be keen to resume production even by a small degree, so long as their business of selling steel is profitable, the report pointed out.

"The average daily hot metal output will reach around 2.33 million tonnes/day for the whole of September," it estimated.

Looking back on last month, domestic integrated mills speeded up their resumption of previously idled or banked blast furnaces at the start of the month when they enjoyed profits, Mysteel Global noted. However, the momentum slowed after the mills began earning less money from steel sales, because the consumption of finished steel was still tepid.

From mid-August, the steelmakers' margins were squeezed by falling prices of finished steel and higher costs of raw materials. For example, China's national price of HRB400E 20mm dia rebar slipped to Yuan 4,134/tonne ($596/t) including the 13% VAT by August 31, lower by Yuan 166/t from that on August 1, Mysteel's assessment showed.

Meanwhile, as of August 31 China's national composite coke price under Mysteel's survey had strengthened by Yuan 350.6/t on month to Yuan 2,763.6/t including the 13% VAT due to mills' robust demand. By September 5 though, the price had pulled back a little to Yuan 2,670.8/t after some major steelmakers in North and East China had succeeded in reducing their coke procurement prices last Friday.

Even though the mills' margins became thinner at that time, daily hot metal output among the 247 steelmakers sampled by Mysteel had already increased to 2.34 million t/d on average over August 25-31, up by 192,900 t/d compared to that during July 28-August 3, according to Mysteel's survey.

In addition, steelmakers' iron ore demand will rise to some degree this month ahead of China's Mid-Autumn Day holiday (during September 10-12) and National Day holiday (during October 1-7), the report noted. The makers will need to rebuild their low in-plant stocks to maintain smooth production during the holidays when traders and logistics firms won't be available to deliver.

As for supply, Mysteel predicts that the availability of imported iron ore at Chinese ports this month will decrease moderately than on month, in view of the fact that the volume of new ore arriving at Chinese ports will be reduced while the discharge rate will stay relatively high.

In August, Mysteel's data indicated that the total iron ore shipments bound for global destinations from the 19 ports and 16 mining companies in Australia and Brazil had dropped to 125 million tonnes, falling by 2.5 million tonnes on month. This means that fewer vessels will eventually berth at Chinese ports, leading to less iron ore tonnage clearing China Customs.

In fact, imported iron ore inventories at the 45 Chinese major ports included in Mysteel's survey finally snapped an 8-week increase streak over August 19-25 to fall to 138.2 million tonnes, though the volume recovered somewhat around the end of last month because of increased carrier arrivals.

The production of domestic iron ore concentrates will pick up in September after miners are freed from power rationing and maintenance work, the report notes, but warns that the growth will not be able to make up for the loss in imported iron ore supply.

As a result, in September imported iron ore prices will be propelled up by firm demand and reduced supply, Mysteel concluded.

During August, prices of imported ore remained largely weak owing to negative market sentiment and continuous accumulation of port stocks, with Mysteel SEADEX 62% Australian Fines falling by $11.85/dmt from August 1 to $100.15/dmt CFR Qingdao on August 31.

Written by Lea Li, liye@mysteel.com

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