China’s blast-furnace steelmakers have fallen back in favour of medium-Fe grade iron ore products recently, shunning the lower grade ores they had shown a determined preference for previously, as medium grade ore promises improved cost-effectiveness, given the poor finished steel margins mills are earning, according to market source.
“We’re observing that some medium-grade iron ore products have become more popular among buyers in these past few days,” a Shanghai-based market source remarked Friday, adding that this week, most deals concluded at ports in Tangshan in North China’s Hebei and Shandong in East China involved ore products such as Jimblebar Fines, Mac Fines and PB Fines.
Medium-Fe iron ore was now being regarded by steel mills as a better alternative after it became more affordable than lower-Fe products, according to her, as it could help limit the mills’ damage from low margins.
Chinese steelmakers’ steel margins have steadily shrunk this year, with the slide gaining pace recently, Mysteel Global noted.
For example, in April, the average gross loss on rebar sales recorded among the 91 Chinese blast-furnace steel mills under Mysteel’s survey deepened for the fourth month by another Yuan 60/tonne ($8.8/t) on month to Yuan 154/t, the latest survey results show.
During the past few months, steel mills tended to buy more lower-Fe grade iron ore as part of cost-saving measures, since there was no need for them to ramp up their production, according to the source. “However, the prices of lower-Fe ore then became more resilient when demand stayed firm and supply tightened,” she pointed out.
Meanwhile, port stocks of some mainstream medium-Fe ore such as PB fines have been mounting steadily, bringing their prices down in tandem, she remarked.
“The preference for medium grade iron ore is not only emerging among steel mills but also among traders,” she observed, noting that traders were also willing to take more of this ore given the lower prices and mills’ firm demand.
As a result, the spread between 56.5% Fe SSF and 61.5% Fe PB Fines at Qingdao port under Mysteel’s tracking had narrowed to a five-month low of Yuan 205/wmt as of May 12, compared with Yuan 218/wmt a week ago.
“One way or another, steel mills would be tempted by cheaper iron ore products and will adjust their feed ratio of different grades of ore accordingly,” she commented. “But I think their fondness for medium- or lower-grade iron ore will remain in the short run, unless their profit margins recover substantially,” she said.
Written by Lea Li, liye@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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