The trading of lower Fe grade iron ore products in China’s iron ore market have recovered slightly over the past several days after months of inactivity as some mills are now finding the ore more affordable, market sources said on Wednesday. The decline in steel margins and the still relatively high prices of medium- to higher-grade iron ore products had largely led to this trend, they said.
“We observed slightly more deals involving lower Fe grade iron ore products concluded at ports in Shandong (in East China) over the past few days,” a Rizhao-based iron ore trader in Shandong remarked. “And some tonnage was bought by traders who were relatively optimistic about demand for lower Fe grade iron ore in the short term,” he said.
A Qingdao-based iron ore trader had also observed a similar trend. “After this round of drastic corrections in steel prices, the previously high steel margins that many steelmakers had enjoyed have been squeezed a lot, which then prompted some to turn to consuming iron ore products of slightly lower Fe grade whose prices are more affordable for the time being,” he explained.
According to him, some mills’ average steel margins have been slashed to around Yuan 200/tonne now from over Yuan 1,000/t during April to mid-May.
A Shanghai-based market watcher also noted that among all lower Fe grade iron ore products, Yandi Fines grading at around 56.5-57% Fe have seen slightly more active sales recently due to the advantages they offer in sintering quality.
Source: Mysteel
When they are enjoying healthy margins, steel mills normally opt to consume higher Fe iron ore products to lift their steel output to maximize their profits, regardless the higher prices, Mysteel Global notes. On the other hand, when the margins are not good, the mills tend to use more lower Fe grade ore products that are generally lower priced as well.
Consequently, the relentless climb in steel prices over the past few months generated growing demand for higher Fe grade iron ore products – whose availability was just stable – which had led to the mismatch in demand-supply and so lent solid support to higher-grade ore prices.
Over the same period, lower Fe grade iron ore products were largely shunned by steel mills, which then saw prices of these ores lose competitiveness compared to those of medium- to higher Fe grade products, Mysteel Global observed.
For example, before the tumble of steel and iron ore prices began on May 13, Mysteel had assessed the price of PB Fines with Fe grade of 61.5% at Qingdao port in Shandong on May 12 at Yuan 1,655/wmt ($258/wmt), higher by a large Yuan 533/wmt from the price on April 1 on FOT basis and including 13% VAT.
In comparison, over the same April 1-May 12 period the price of Super Special Fines with an Fe grade of around 56.5% at the same port had risen by only Yuan 345/wmt to Yuan 1,275/wmt.
However, during the past week lower Fe grade ores have shown resilience amid the price drop, with the price spread between PB Fines and Super Special Fines at Qingdao port narrowing to Yuan 351/wmt as of May 25, down Yuan 52/wmt on week.
Nevertheless, a Zhejiang-based iron ore trader was still confident that medium- to higher Fe grade ore would remain in demand for the immediate future. “After all, it seems now is still not the time for steel mills to cut their production or to become rather serious about reducing their raw materials costs,” he commented.
Written by Victoria Zou, zyongjia@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
Leave a Reply