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Chinese mills seek low-price iron ore as profit falls

Chinese steel mills are cutting back on purchase of premium mainstream medium and higher grade fines and lump, seeking to increase the proportion of lower priced ores in the furnace burden amid a sharp fall in profit margins.

Mills have increased the usage ratio of lower priced medium and low-grade ores such as Jimblebar, Mac, SSF, Fortescue blended, Indian and Roy Hill fines as well as lump. They are also using lower priced lump, such as Roy Hill, to partially displace PB and Newman Blend lump in the furnace burden, said Chinese market participants.

Demand for premium medium-grade and high-grade fines such as PB, BRBF, Newman and IOCJ fines has been coming down over the past few days. The Argus-assessed, yuan-based portside PB, Newman and BRBF fines prices have fallen by over 3pc so far this month. The Argus 65pc seaborne fines assessment, which mostly tracks the IOCJ fines price, has fallen by 5pc so far this month.

Demand for PB fines has also been hit by increased availability in major ports. PB fines stocks increased by around 500,000t in Shandong ports over the past couple of weeks. Offers for PB fines were at $2/dry metric tonne (dmt) to the December 62pc index on 21 November, down by 20¢/dmt from the previous day.

The bid-offer spread was widening with mills bidding at around $1.50/dmt premium. A 40,000t cargo of 61pc PB fines was offered at Yn550/wet metric tonne (wmt) at Beilun port on the Corex platform today, at a seaborne equivalent of $70.90/dmt, much lower than off-screen offers for the grade at Yn575-585/wmt in Caofeidian and Shandong ports. Some sellers may be getting more concerned about the market situation and seeking to clear stocks of higher priced ores.

Profit margins of rebar, billet and hot-rolled coil producers have been less than halved over the past two weeks, with some mills even selling at a loss. Major iron ore producers have repeatedly said this year that China's iron ore demand may have structurally shifted to premium medium-grade and high-grade ores on the back of tougher environment restrictions and capacities shifting to new and large blast furnaces built in coastal areas. But some analysts have said that use of iron ore still remains a function of profit margins and a switch to lower priced mainstream and non-mainstream ores is a likely possibility if margins erode.

Among the largest increase in demand in recent days has been Jimblebar fines, with cargoes selling at a brisk pace in seaborne and portside markets. A cargo of Jimblebar fines with December-loading dates was sold at an $8/dmt discount to the December 62pc index on 21 November. "Right now seaborne Jimblebar fines is very hot in the market but availability is limited," said a Shanghai-based trader. A cargo of Jimblebar fines sold at Yn510/wmt at Tangshan port.

"SSF fines and Indian fines are receiving more enquiries but the bids are not yet around levels we can accept," said a Tianjin-based trader.

Cargoes of Roy Hill lump were sold at Yn630/wmt at Huanghua and Shandong ports. Demand for Roy Hill lump is better than higher priced, premium lump cargoes at present, said a south China-based trader.

Demand for Fortescue's blended fines has also been brisk, with a cargo selling at a Tangshan port for Yn420/wmt. Increased demand has not translated into higher prices with mills facing strain in cash flows amid falling steel prices.

News No: 2697
Date: 2018/11/23 - 21:13
News Source: Argus Media

iron ore  china  steel  Fortescue 

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