China: Higher-grade imported iron ore loses popularity among mills

• Mills focused on cutting production costs amid weak profits
• Demand for higher grades may rise soon as profits recover

Mysteel Global: Chinese steel mills have turned away from buying imported higher-grade iron ore fines of late because, for many steelmakers, these products have not only become less cost effective than medium-Fe fines, but they have also lost their competitive edge against domestically produced concentrates, Mysteel’s data show.

Mysteel’s assessment showed that the spread between 65% Fe Carajas fines and 61.5% Fe PB fines at Qingdao Port had narrowed to RMB 105/wet metric tonne (wmt) ($14.5/wmt) as of 11 March, down by RMB 11/wmt from a month ago. Significantly, the price spread between the two products has neared a one-year low.

The reason behind the narrowed price gap between the two products was the weaker appetite for higher-Fe iron ore products among mills, who are attempting to reduce their production costs as their profits, are being constrained by falling steel prices.

For instance, China’s price of HRB400 20mm dia rebar settled at RMB 3,360/tonne (t), including the 13% VAT, on 11 March, lower by RMB 105/t m-o-m, according to Mysteel’s assessment.

In view of the muted demand for high-grade ores among mills, many traders holding Carajas fines opted to sell their stocks at large discounts to alleviate their inventory pressure, according to a market source.

As of 11 March, prices of 65% Fe Carajas fines at Qingdao Port fell to RMB 881/wmt, according to Mysteel’s data, down by a sharper RMB 39/wmt from a month earlier when compared to 61.5% Fe PB fines where the m-o-m decline was RMB 28/wmt, and prices settled at RMB 776/wmt.

Meanwhile, domestic mills’ demand for imported high-Fe fines also weakened when these products became less cost-effective compared to domestic iron ore concentrates – a higher-Fe grade feed also used by Chinese mills.

For example, by 11 March, the price spread between 66% Fe grade domestic iron ore concentrates produced in Tangshan in North China’s Hebei and 65% Fe grade Ukrainian concentrates had dropped to RMB 10/dmt, down by RMB 45/wmt from a month ago and also touching an intra-year low.

Nonetheless, there is a chance that the keenness for using higher-grade ores among the Chinese mills might return soon, given that the recent improvement in profit margins among mills will allow them to afford more of these expensive ores, an iron ore analyst based in Shanghai suggested.

Mysteel’s tracking of the 247 Chinese integrated mills it regularly checks showed that, on 6 March, about 53% of them – some 131 producers – could make some profits from selling their steel products, with the ratio being the highest level so far this year.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.