MySteel Global – Global iron ore demand flies above supply in Q3

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Photo courtesy: BHP

The world’s top iron ore miners had strived to supply more to the global steel mills with those in China in particular over the July-September quarter, and yet China’s imported iron ore prices had soared to the multi-year highs for the seaborne cargoes and port inventories, clearly illustrating the country’s phenomenal growths in steel output and in turn iron ore consumption.

World’s Top Four Iron Ore Miners’ Output until September

It is no denying the fact that China, alone, as the world’s top steelmaking country, had helped to offset the blow of the pandemic on the global ferrous community, and it seems that 2020 has not been too bad a year for the world’s iron ore miners after all.

As of September 3, Mysteel’s SEADEX 62% Fe Australian Fines soared to a 6.5-year high of $130.75/dmt, and it had been happily strolling around $99.45-130.75/dmt CFR Qingdao in the third quarter, up from $81.7-105.65/dmt for Q2, and the PORTDEX 62% Fe Australian Fines had seen its 7.5-year high even earlier on August 20-21, hitting Yuan 971/wmt ($147.1/wmt) FOT Qingdao and including 13% VAT and it has been hovering at Yuan 786-971/wmt for July-September as against the Yuan 639-813/wmt range for Q2.

China’s Q3 iron ore demand surprises the world

China’s daily crude steel production over July-September had been exceptionally robust and the September daily average also refreshed the record, hitting 3.09 million tonnes/day.

China’s iron ore imports, on the back of strong steel demand and output, had been with the momentum of growing ever since April when the country’s economy and industrial activity restarted, and its iron ore imports had grown 13% on quarter with the monthly volume persisting above 100 million tonnes for the three months of the third quarter.

Not only so, the country’s iron ore imports had been from many new origins other than Australia and Brazil as the norm, as countries such as Canada, Russia, India, Ukraine and Sweden, had all been keen to export iron ore to China when the demand from their own steel mills and elsewhere had all be largely compromised by the ongoing battle against the pandemic. 

The surge in iron ore imports was also partially due to China’s limited room for growth in its own domestic iron ore concentrates, which also grew 2.6% on quarter to about 71.8 million tonnes for the third quarter, according to Mysteel’s tracking among the 332 Chinese mining companies.

In contrast, the total shipments or sales from the world’s top four had stayed largely flat on year over the July-September quarter, adding up to around 274.1 million tonnes or up just 0.6% on quarter, as many maintenance works had been rolled out at the Australian operations, but Vale had been an exception, as its iron ore fines sales recovered substantially on quarter by 20.4%.

Vale’s Q3 iron ore fines output also hit the new high since Q1 2019, suggesting that the company had been gradually and steadily getting rid of the affection from the dam collapse in late January 2019.

Some iron ore brands favoured by China over the others

China’s high iron ore demand until September had been great news to all the world’s top suppliers, though some were definitely happier than the others, as China, seemingly the only sizeable consumer of iron ore in 2020, had been rather selective and adjusting its iron ore feeds at its own will, and among the favourites are the medium- to high-grade iron ore supplies from Australia such as PB Fines, Newman Fines, Mac Fines, and Jimblebar Fines, because of their cost effectiveness and efficiency.

It has been a rare phenomenon in China that the growth of the portside iron ore pricing index had exceeded those of some seaborne cargoes over July-September, mainly due to the exceptionally robust demand from the Chinese steel mills but the relatively low iron ore stocks at the ports, as there had been serious congestion of iron ore vessels at the Chinese ports on the adverse weather and COVID-19 tests on crew members on the vessels from certain countries. 
 
By the end of September, inventories of imported iron ore at the 45 Chinese ports recovered to  just about 119 million tonnes from a three-year low of 106.17 million tonnes in mid-June, but it was still much lower on year, and Australian iron ore inventories even hit its 13-month low of 56.6 million tonnes earlier on September 3.

Iron ore prices to ebb throughout Q4?

China’s iron ore market, however, has been into a downtrend after a grand Q3, as iron ore port inventories returned to level of last November at about 128 million tonnes as of November 5, and Mysteel’s SEADEX of the 62% Australian fines, accordingly, eased to $117/dmt, and the PORTDEX of the same grade also declined to a new low since July 27, hitting Yuan 854/wmt on the same day.

“China’s steel output and domestic steel prices have been strengthening recently, but the iron ore prices have been fluctuating by $3/dmt recently, and I suspect the raw material price may be sliding but hovering at slightly above $100/dmt for the rest of the year if China’s steel prices can hold rather well,” a Singapore-based iron ore trader commented.

A Shanghai-based iron ore analyst shared a similar estimation.

“For the last two months of 2020, China’s iron ore prices may soften further with a probable slow-down in steel demand when the winter sets in, and frequent and more widespread restrictions may affect the country’s steel output, which will further decrease the demand for iron ore,” he said.

Well, it is hardly surprising, therefore, for the correlation of the iron ore prices and steel prices to show signs of weakening instead of strengthening in the fourth quarter, as China’s large-scale winter restriction is usually targeting sintering, coking, and blast furnaces of the steel mills, Mysteel Global notes.

Blast furnace capacity utilization among China’s 247 steel mills under Mysteel’s tracking have been gradually dropping, down to an average of 92.27% over October 30-November 5 from the record high of over 95% in mid-August.

The assumption of the two market sources, though, has been on the condition of at least steady iron ore shipments from the core overseas miners for the remainder of the year that will see China’s iron ore port inventories pile up higher.

For now, China’s domestic steel demand seems to be faring well, which has been the backbone of the rather firm rebar prices, which has also helped to avoid a crash in iron ore prices. 

Mysteel’s data showed that over November 1-4, the trading volume of construction steel consisting of rebar, wire rod and bar-in-coil across China’s 237 steel traders averaged 256,967 tonnes/day, 18% higher than a year ago, or way above the threshold of 200,000 t/d, suggesting the domestic steel demand has been solid in November, the early winter in China. 

China’s national price of HRB400 20mm dia rebar, in tandem, strengthened to the year’s high of Yuan 3,935/tonne including the VAT as of November 5. 

“This year has been a rather unique year, and November has differed from the previous years when the domestic steel demand should have decreased with the winter coming, it will be interesting to say how all the factors will play out and whether steel and iron ore prices will be breaking up from the close correlation or even going opposite,” the Singapore trader commented.

(Written by Victoria Zou, zyongjia@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com)

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