Steel margin expansion pushes shipping iron ore prices to record high

The Platts 62% Fe Iron Ore Fines Index hit a record high of $196.85/mt dry CFR North China, 85 cents higher than the previous high set in February 2011 of $193/mt, in the continuation of the price strength displayed in the first quarter. 2021 with high steel production and rising margins in China driving demand for iron ore.

Global crude steel production totaled 486.9 million tonnes in the first three months of 2021, up 13% from the same period in 2020, according to World Steel. Of this total, China produced 271 million crude steel in the first quarter, up 15.6% year on year.

Despite the strict implementation of regional production controls in northern China since March this year, Chinese steel production has continued to strengthen on the back of booming downstream demand.

“The surge in crude steel production in March around the world turned people’s expectations into reality. The first quarter production data proved that the demand for iron ore and steel is strong and steel mills would maximize the rate of production where they are currently allowed. End users who were reluctant to create positions in March accelerated the pace of buying in April,” said a Beijing-based Chinese trader.

HRC, rebar margins at record high
April to May is traditionally a peak season for steel demand in China, given the favorable weather conditions for construction activities. This coincided with a sharp rise in steel prices in the first quarter in Europe and the United States, as COVID-19 vaccination programs helped the economic recovery.

According to S&P Global Platts Analytics, Chinese domestic steelmaker Platts MVS’ HRC margin hit a record high of $177.88/mt on April 26, while rebar margin closed at a two-year high. from $138.75/mt.

“Flat and long steel margins are looking to hold at levels around 1,000 yuan/tonne thanks to buoyant export markets. Domestic downstream sectors also matched the price hike,” said a factory source based in northern China. “It supports the level of factory acceptance for high raw material costs.”

Meanwhile, in southern China, an inland-based supply source saw relatively lower margins on steel, but noted a general trend among local mills to maximize steel production. pig iron and to obtain better quality ores with a higher iron content.

The vastly improved liquidity on port transactions during the week also echoed the view that the recent rise in iron ore prices was due to demand for resupply. The Platts Iron Ore 62%-Fe Iron Ore Port Stock Index, or IOPEX East China, was valued at 1,333 yuan/wmt FOT on April 27, or $193.89/dmt on an import parity basis .

Iron ore supply was less of a concern in the first quarter of 2021 compared to the same period in 2019 and 2020, with Brazilian miner Vale producing 68 million tonnes in the first quarter, up 14.2% from the first. quarter of 2020, according to its latest quarterly production report.

Meanwhile, in Australia, above-average wet weather hampered production levels in the first quarter of 2021. Among major producers, BHP produced 59.8 million tonnes and Rio Tinto produced 76.4 million tonnes of iron ore in the first quarter, stable and down 2% respectively compared to the same period last year. .
Source: Platts