China’s seaborne iron ore prices have risen by 14pc in the last three weeks, defying predictions of a sharp fall after blast furnace output restrictions were enforced across cities in the north and east of the country.
The Argus ICX price for 62pc imported fines was assessed at $71.05/t yesterday, up from $62.25/t on 15 November. The price hit $71.50/t on 4 December, the highest level since 18 September.
Large steel-producing cities such as Tangshan, Handan and Tianjin have enforced a 50pc reduction in blast furnace output from 15 November to 15 March to reduce coal use during the winter heating season. Three other provinces, Anhui, Jiangsu and Shaanxi, have enforced blast furnace restrictions since mid-November.
Many market participants had predicted that 62pc basis mainstream fines prices would fall to $55/t once the blast furnace restrictions took effect, with some putting support at $50/t. They expected portside stocks to rise, because of increased shipments in October-December as top producers sought to meet annual targets, at the same time that iron ore demand would fall as a result of the output cuts.
But iron ore prices have largely tracked gains in steel prices, especially long products, in recent weeks, maintaining a trend that started last year. Rebar prices in the key market of Shanghai have risen by 4.9pc since 15 November.
Higher steel prices have boosted sentiment in the iron ore futures market, with traders expecting strong steel demand to outweigh the bearish influence of production cuts and drive iron ore sales through the winter months. Futures market gains have fed into physical prices, as mills and trading firms typically participate in both markets. The most-active iron ore contract on the Dalian Commodity Exchange rose by 13.1pc between 20 November and 5 December.
Iron ore demand is also being supported by rising output at steel mills in south China following the restrictions imposed in 28 cities in north and east China. South China mills are not subject to environmental restrictions and do not face the kind of winter construction slowdown experienced by producers in the colder north of the country. Stronger steel demand in south China has helped mills raise sales and prices of steel and iron ore products. Some south China mills are operating with over 30 days of iron ore stocks, above the national average of 25-27 days.
The gains in seaborne iron ore markets have also been reflected at the portside. North China mills have stepped up portside iron ore purchases to avoid being caught short during the winter, when roads can be blocked by snow. A 10.5pc increase in met coke prices since 15 November has also helped shore up demand for high-grade sintered fines and pellet feed concentrate, cutting demand for imported lump and low-grade fines.
The Argus PCX price for 62pc portside fines has risen by 16.1pc since 15 November to 540 yuan/wet metric tonne yesterday, the seaborne equivalent of $71.55/t assuming 17pc value-added tax and 8pc moisture.
Seaborne purchases have also been supported by near-unanimous expectations of a spike in steel demand from February, once the spring season gets underway. Mills have been stocking up on January-delivery high-grade fines cargoes to lock in prices ahead of an anticipated surge in iron ore prices following the lunar new year holidays in mid-February.
Expectations for strong demand early next year are based on a buoyant real estate market and infrastructure construction. But home purchase restrictions in several large cities could slow construction steel demand later next year.
There are some concerns that the iron ore rally in the past couple of weeks may have been overdone and a short-term correction could be imminent. But market participants do not expect a sharp drop in either sales or prices of iron ore as long as steel sales remain robust.