Reestablishing steel margins, high prices at Chinese ports push sea iron ore prices up for further gains
After falling below $ 200 / mt at the end of May, the Platts 62% Fe Iron Ore Index, or IODEX, regained strength in June thanks to continued tight supply and demand. resilient Chinese.
Since June 8, IODEX has been consistently trending upward, reaching $ 222.3 / mt on June 14.
Chinese steel margins rise amid expectations of further steel production cuts
Chinese steel demand and prices typically weaken in June as the wet monsoon season and onset of warm weather hamper construction activity. However, Chinese hot-rolled coil and billet prices rose in the week ending June 13, with the market expecting further production restrictions to tighten steel supply. Chinese cities such as Qinhuangdao and Tangshan in Hebei Province both announced new measures to tackle air pollution on June 11. Some sources said they expected more regions to implement similar restrictions, pointing out that crude steel production has increased further this year despite the government’s statement to cut it. As a result, Chinese steel margins have shown early signs of recovery, creating more margin for iron ore prices.
Tightening of port stocks of iron ore, widening of import margins
What is more remarkable than the strength in sea-freighted iron ore prices, which has not received the attention it deserves, is the strength in port-side iron ore prices. Since May, Chinese Port-Side Medium Quality Prices, or IOPEX, have consistently been more expensive than IODEX, based on the Qingdao CFR. The positive spread, that is, the import margin, gave traders the confidence to bid for sea cargo, since even selling cargo in ports, as a usual last resort, could still generate a profit. The import margin widened on June 11, with port prices exceeding sea prices.
The strength in port prices on June 11 could have been due to a tightening of short-term domestic supply prospects, as a mining accident in Shanxin province suspended all underground iron ore activities. In addition, maritime supplies remained tight, especially for major minerals. Coupled with delays in unloading some iron ore shipments due to the coronavirus pandemic, this has recently led to a drop in stocks at Chinese ports.
Chinese factories had been buying overnight at ports for several weeks, sources said. Tightening domestic supply of concentrate and rising margins on Chinese steel could increase demand for factory replenishment, pushing port prices up in the near term.