China to stay glutted with imported iron ore

Posted on 04 November 2021

The oversupply of imported iron ore in China's market will likely continue this month, with prices of the ore remaining weak, according to Mysteel's latest monthly report released on November 1.

 

For this month, carrier arrivals at Chinese ports might decline, chiefly due to the relatively lower shipping volumes of ore from Australia and Brazil in October.

According to Mysteel's data, global iron ore shipments last month dipped by 7.92 million tonnes on month to 133 million tonnes, with the average daily shipments also being among this year's low. Within the total, supplies from Australia to global markets dropped by 6.79 million tonnes on month to 74.32 million tonnes, while shipments from Brazil were lower by 1.77 million tonnes at 30.84 million tonnes.

Nevertheless, Mysteel still expects iron ore stocks at the ports to climb further given that the China's sluggish demand for iron ore will almost certainly continue.

As of October 28, the total inventories of imported iron ore at the 45 major ports under Mysteel's survey had climbed to 144.9 million tonnes, a new high since April 5 2019 and up by 11.7 million tonnes from September 30.

In detail, regarding the iron ore demand, this month will see much of the country's northern regions officially enter the winter 'heating' season (generally November-March) when local governments will impose frequent smog-abatement measures on local industries under their jurisdiction including steelmakers, requiring them to further control their operations. Such directives can only become more intense and more frequent as North China prepares to host the 2022 Winter Olympic Games over February 4-20. Consequently, iron ore demand will continue to be undermined.

In fact, during last month while production curbs imposed on steelmakers in some areas such as Jiangsu in East China and in Guangxi and Chongqing in Southwest China were eased slightly, mills elsewhere still faced rather tough restrictions, with the curbs on steel mills in some parts of North China even escalated. For example, the restrictions on sintering operations among mills in Hebei's Tangshan were extended during the second half of last month due to poor air quality.

Mysteel's survey results underscored the trend, with daily molten iron output first recovering slightly to as high as 2.16 million tonnes/day over October 8-14 before reversing down again to 2.11 million t/d over October 22-28. The average volume remains rather low.

Meanwhile, also last month, the congestion of bulk carriers at many ports remained serious, though the jam had eased slightly by the end of month. By October 28, there were still 190 vessels queuing at these ports for unloading, still at a relatively high level.

Under these circumstances, China's iron ore market this month will likely remain in oversupply and ore prices might continue to be weak, the reported predicts.

Moreover, the support that iron ore prices had gained from soaring freight charges for dry bulk vessels - a major component in iron ore costs - has weakened will the recently easing of freight charges from previous highs, the report suggested.

As of October 29, the Baltic Exchange Capesize Index, the key indicator of freight rates for Capesize dry bulk carriers usually at 100,000 deadweight tonnes and above, had halved to 4,349 points from the more than 13-year high of 10,485 points reached on October 7.

As for the daily freight charges, those for iron ore vessels to 170,000 tonnes travelling between Port of Dampier in Western Australia and China's Qingdao port had plunged to $12.6/tonne as of October 29, down $10.1/t or 44% on month, according to Shanghai Shipping Exchange data. The freight rate between Brazil's Tubarao and Qingdao also decreased by $17.5/t or 38% on month to $28.2/t.

Last month, the still weak demand for ore saw a rather limited recovery in imported iron ore prices after the long National Day holiday (over October 1-7), with Mysteel SEADEX 62% Australian Fines, for example, initially climbing to a high of $136.25/dmt CFR Qingdao on October 11 before dropping to $107.55/wmt by October 29.

For the current month, a close watch should be kept on domestic steel prices, the report also noted, because with steel prices showing signs of declining, the preference of steelmakers for different iron ore products may change and ores regarded as more affordable will become sought after.

As of October 29, China's national price of HRB400E 20mm dia rebar under Mysteel's assessment had plummeted by Yuan 564/tonne or 9.5% from September 30 to Yuan 5,361/t.

Source : Mysteel Global