China’s iron ore market still rises but high inventory at ports to cause problems
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China's domestic iron ore market has continued its recovery over the past week, with a slight rise observed in prices of both imported and domestic ores. However, given the high iron ore inventory of more than 70 million mt at China's ports and also the excessive levels of steel production in the country, players are not optimistic as regards the prospects for the domestic iron ore market in the coming period.
Weekly change (RMB/mt)
Iron ore concentrate
damp base (iron content: 66 percent)
India fine ore
The surge in the iron ore import volume to China has driven up the international dry bulk shipping market in recent weeks. On May 13, the Baltic Dry Index (BDI) hit a record high of 2,332 points for the current year, up 59 percent since April 8 and up 79 points compared to the previous day, mainly due to China's iron ore imports according to most industry insiders. Meanwhile, shipping freight costs from Australia and Brazil to China have also climbed up. On May 14, the average freight charge from Brazil to Beilun Port in China was $23.77/mt, up by $1.12/mt compared with the level on May 7. Meanwhile, the average freight rate from Western Australia to Beilun on May 14 was $10.5/mt, up $1.21/mt compared with the rate on May 7. In addition, the freight cost of Indian ore to China's major ports was at $12.91/mt, a minor rise of $0.54/mt week on week.
According to the figures released by China's General Administration of Customs, iron ore imports hit another record monthly high in April, totaling 57 million mt and recording year-on-year growth for a fourth consecutive month. China's total iron ore imports in the January-April period reached 188.46 million mt, up 34.92 million mt or 22.9 percent year on year. The substantial production cuts implemented by mills in the US, Europe, Japan and South Korea have resulted in large quantities of iron ore piling up at the ports of the global mining giants. Thus, in the context of the slump in shipping freight charges, the mining giants decided to move large amounts of iron ore from their ports to the Chinese ports at low cost. Moreover, some Chinese traders consider the current time to be suitable for "bottom fishing," and this has also contributed to the recent surge in iron ore imports. Commenting on this general situation, CISA secretary general Shan Shanghua has stated that such a large import volume would give a falsely positive impression of iron ore demand, which would be detrimental in the context of the international iron ore price talks.
Against the continuing positive performance seen in the domestic finished steel market, iron ore demand in China has also climbed up by a certain margin, resulting in minor price rises for both domestic and imported ores. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is up RMB 20/mt ($3/mt) week on week to RMB 530-540/mt ($78-79/mt, tax excluded), while the market prices in the northeastern regions have risen RMB 10/mt ($1/mt) compared to last week to the level of RMB 460-470/mt ($67-69/mt, damp base/tax excluded). Meanwhile, the prices of 63.5 percent Indian fine ore are at $54/mt FOB, while the CIF price (Tianjin Port) is around $65-67/mt. Additionally, the price quotation of 63.5 percent Indian ore is at RMB 550-560/mt ($81-82/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has remained constant at RMB 550/mt ($81/mt), with the market price of 65 percent Brazilian fine ore at around RMB 580/mt ($85/mt). Looking at the current situation, without a solid foundation the domestic finished steel market will not be able to sustain a long recovery. As a result, China's iron ore market is expected to face significant pressure in the future from excessive steel production outputs and the continuous increase in iron ore inventory at the ports.