Lower grade iron ore demand picks up among Chinese mills

After seeing their recent profit margins on finished steel sales be squeezed again, Chinese steelmakers have flexibly adjusted their strategy by consuming slightly more lower Fe grade iron ore products such as Super Special Fines (SSF) in their production, according to market sources.

Source: Mysteel

Medium-Fe iron ore has earned mills’ favor since last month given their price competitiveness, and also due to mills’ resumption in previously idled or banked blast furnaces after they managed to enjoy improved steel margins, as reported.

Nevertheless, some iron ore traders recently received more inquiries from mills for SSF than in the prior few weeks, as their modestly recovered margins had been eaten again by higher costs of procuring coke and weakened prices of finished steel, a Shanghai-based market watcher shared.

For example, due to steel producers’ firm demand for coke, China’s national composite coke price under Mysteel’s assessment climbed by Yuan 76.7/tonne ($11.2/t) on week to Yuan 2,763.6/t and including the 13% VAT as of August 23.

On the other hand, China’s national price of HRB400E 20mm dia rebar under Mysteel’s survey eased to Yuan 4,240/t and including the 13% VAT on August 23, Yuan 67/t lower from a week ago.

Consequently, the gross profit on billet sales among integrated mills in Tangshan, a top steel production city and billet supply base in North China’s Hebei, turned into a loss of Yuan 18/t by August 20, compared to the positive Yuan 89/t on August 13, according to Mysteel’s latest survey.

With steel mills’ appetite for lower Fe iron ore increasing, prices of low grade ore have shown more resilience than medium-Fe ore, Mysteel Global learned.

For example, the price spread between 56.5% Fe SSF and 61.5% Fe PB Fines (PBF) at Qingdao Port under Mysteel’s tracking narrowed to Yuan 113/wmt as of August 23, being Yuan 19/wmt smaller on week.

Even so, “Chinese mills’ preference for medium-grade ore, especially for PBF, will continue to persist, should they further lift output when steel supply and demand becomes more balanced,” the source said.

Written by Lea Li, liye@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.