Amoot Iranian Trading Company

­the ascending trend in the iron ore market which started since 2019, halted in August. A month on month price decline of 24% for 62% Fe material and a 23% price reduction for Fe 65%. 

The 65% Fe derivatives contract on the Singapore Exchange – which was launched in December 2018 and settled against daily 65% Fe iron ore index - stayed above 2-million-MT trading volumes in August, compared with 2,104,800 tons in July. 

The price spread between 65% Fe iron ore and the 62% Fe equivalent had been range bound above USD8 per ton last month.

Physical iron ore prices were down on Tuesday September 3 amid a cooling off in buying interest while the futures market stayed largely rangebound.

PRICE CHANGES

Some participants attributed the decrease in the iron ore market to the increased supply from major producers and non-mainstream sources and lower margins for steel mills. “The general margin for mills is around 0-200 yuan (USD27.86) per MT and mills located in Northeast, Northwest and Southwest are sitting at the low end of the range,” a trading source said.

“Mills are looking to increase the consumption of iron ore lump and reduce that of sintered fines and iron ore pellet from a cost-efficiency point of view,” the trading source added. 

Assessment of the price of rebar, domestic, EXW Eastern China averaged 3,678-3,712 yuan per MT in August, compared with 3,962-3,991 yuan per MT the prior month, with the
 midpoint down by 7% month on month.

In mid-August - when mills in Shanxi province cut production in response to limited margins - some trading sources were concerned that the margin issue would force more mills to limit output despite the incentive not being a government directive. Some participants expect margins to recover, however, due to reduced raw materials costs since mid-August, which might give
 mills the momentum needed to continue production.

 “Some steel mills are still generating positive cash flow and definitely do not want to cut production at blast furnaces, but they may reduce the use of scrap to alleviate crude steel production,” another trading source said. China is due to celebrate its 70th year anniversary of founding on October 1, therefore, the environment and air condition is of great importance before celebrations begin. Market participants expect production restrictions for both steel mills and construction sites near the capital during late September.

 “Some mills in Hebei province may ramp up production and consume more high-grade fines to raise efficiency before the local government issues any restriction plans,” a third trading source said. “It’s reasonable for mills to buy high grades right now because the spread of high and medium grades are at historic low levels,” he added.

MARKET DRIVERS

Futures analysts told that “most market participants probably sold off their positions the previous day when the market was hot.” In addition, a broker said that most of his clients were also “starting to take notice of the depreciating Chinese yuan against the United States dollar,” prompting some market participants to take to the sidelines to observe the market.

The Chinese yuan has fallen to its lowest level in more than 11 years against the US dollar, prompting potential buyers of Chinese products to become more cautious - although exporters of Chinese products welcomed the higher exchange rate to the US dollar. The bullishness seen in China’s iron ore futures on Monday led to a rise in the night trading session, with the most-traded January contract climbing by around 3.5%. 

However, buying interest had fizzled out by the start of play on Tuesday and the benchmark January contract stayed largely flat for most of the trading session, with only a slight gain of around 0.4% from the opening to the close of the market, according to brokers. Spot iron ore trading activity continued at Chinese ports, however, as prices rose by around 1.5% from Monday, despite the Chinese futures staying largely flat through the day.

Some trader believe the firmer port prices were being supported by the ongoing stockpiling exercise by some steel mills. This trend could also be observed in the spot transactions, as a
 cargo of Pilbara Blend fines was offloaded by a miner at a premium USD4 per MT to the October index, slightly higher than the last known transaction at a premium of USD3.80 per MT to the October index.

Iron ore indices were largely down, with the price movements based on the visible market activity detailed below, which was included in the index calculations according to the published methodology.

 

QUOTE OF THE DAY

“Port prices were still noticeably firmer compared with the seaborne values, as [port] cargoes were promptly available, allowing [them] to command some premium over the seaborne [material], especially with supplies of Pilbara Blend fines remaining limited,” a trader said.

PORT PRICES

Pilbara Blend fines were traded at around 725-750 yuan per MT in Tangshan city and Shandong province on Tuesday, compared with 710-735 yuan per MT a day earlier. The latest range is equivalent to USD94.30-97.70 per MT CFR China in the seaborne market.

Report By: MohammadReza Barakchian