Iron Ore Rises; High Steel Prices Prompting Mills To Procure More Raw Material

Iron Ore Rises; High Steel Prices Prompting Mills To Procure More Raw Material

Iron ore prices soared further, with Dalian Commodity Exchange (DCE) Iron ore 62% Fines Fe closed at RMB 654.50 (as on 11th April), up by 0.54% up as compared to its previous close. The iron ore inventory across the 35 ports in China Climbed to 137.30 million tonnes (as on 4th April), up by 1.14% as compared to the past week. However, the high inventory did not see the high procurement as the mills procured during the starting week of April 2019.

The early procurement by the Chinese mills led China’s domestic inventory to build and the steel inventory in China was at 18.69 million tonnes (for the week ended 4th April), up by 5.50% as compared to the domestic steel inventory in the previous week. The high domestic steel inventory prevented mills from procuring the raw material.

However, few mills across China remained active, especially mills in Hebei provinces after the removal of recent suspension on the mills’ activities in the provinces amid bad air quality.

Also, the steel prices in China’s domestic market are surging, which in turn, can prompt the mills to procure iron ore and in the environment of diminishing supply and supply constraints could support the iron ore prices further.

Steel Rebar marked a closing of RMB 3960 (as on 4th April), up by 1.54% as compared to its previous close. Likewise, the prices of hot-roll coiled (HRC) steel also climbed by 1.30% as compared to the previously reported prices to close at RMB 3900 (as on 4th April).

The high steel prices are further expected to support the mills to produce more than normal level of steel to take advantage of high domestic prices and high domestic consumption.

Seaborne iron ore 65% Fe fines also marked the rise and settled at RMB107.75 (as on 11th April), up by 0.47% as compared to its previous close.

In the recent dynamics, the iron ore market is weighing the demand higher as compared to the supply, the supply in the raw material market is restricted over the production loss from significant miners in Australian such as Rio Tinto and BHP. Cyclone Veronica, which crossed the Pilbara region caused a significant loss in production from the miners in Australia, who operates in the Pilbara region. Not just the production loss, the tropical cyclone led the port authorities in the Pilbara region to suspend the ship loading and docking activity in Port Hedland.

The suspension of these activities is also marking a decline in the shipment from Australia to Chinese ports, which is further widening the supply gap.

Apart from supply gap in iron ore market, other steelmaking raw material such as coking coal is facing high import restriction in China due to environmental concerns, which in turn, increasing the cost of raw material in the market.

The high cost of raw material in the domestic market, coupled with increased demand is pulling the steel prices up, which in a loop, is supporting the iron ore prices by creating its demand in a supply constraint environment and providing any sharp fall in it.


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