Iron Ore Stocks Losing Charm Over Soaring Supply

  • Jun 25, 2020 AEST
  • Team Kalkine
Iron Ore Stocks Losing Charm Over Soaring Supply

Summary

  • ASX-Listed iron ore stocks are trading in red with Champion Iron Limited (ASX:CIA) plunging 2.685 per cent while others such as BHP Group Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO), following the same trajectory.
  • The steel production and consumption both are on surge in China, keeping the demand lit; however, now the iron ore supply chain is restoring with iron ore deliveries from Australian ports increasing by 1.73 million metric tonnes.
  • However, the Brazilian supply chain is yet clogged over increasing COVID-19 cases across major operations of Vale, limiting the workforce and in turn, keeping the supply in check.

ASX-listed iron ore stocks are now caught between the crossfire of rising steel inventory across China and restoring supply chain. The stock prices are retracing back from their multi-period highs and some such as Fortescue Metals Limited (ASX:FMG) are retracting from life highs.

Read Here: Fortescue Metals Breaking All Records!! Here’s Why?

China is poised to grab the global steel trade and is currently injecting required stimulus into the steel industry, which is notching up operations to bring the cream of the crop out and allowing it to secure a large tranche of the global steel industry.

To Know More, Do Read: China Poised to Grab the Global Steel Trade as Economies Open up for Trade

Daily Crude Steel Output Poised to Touch Monthly New Record During Mid-June

The ramp up in steel manufacturing across China in the recent past is now reflecting into figures with daily crude steel production at the China Iron and Steel Association (or CISA) mills rising by 1.6 per cent during mid-June to average 2.14 million metric tonnes per day.

At 2.14 million mt, seen during the second 10-day of the month of June, the daily average output was at the highest on record and remained 1.57 per cent up against the level during early June.

Furthermore, the daily crude steel output across CISA mils remained 2.89 per cent higher against the full-year average seen in May 2020 during mid-June and also remained 3.74 per cent higher against the previous corresponding period in 2019.

As per the recent data from CISA, the inventory of steel products across mills stood 5.77 per cent higher and stood at 14.62 million metric tonnes, as on 20 June 2020 as against the data recorded on 10 June 2020. When compared to the beginning of the year, the same inventory remained 53.36 per cent higher.

The Steel Consumption Trend Remain Accelerating During Mid-June in China

While the production of steel is ramping up across China, the consumption trend is not lagging behind with social inventories of various steel products across 20 cities maintaining the downtrend during mid-June, though at a faster pace.

As per the latest data available with CISA, social inventories of hot and cold-rolled plates and coil, wire rods, and rebar across 20 cities stood at 12.13 million metric tonnes (as on 20 June 2020), further down by 4.6 per cent from 10 June 2020.

Out of all steel products, the wire rods declined the most during mid-June with a plunge of 13.2 per cent across 20 cities to stand at 2.15 million metric tonnes.

Furthermore, as of 20 June 2020, the overall steel products across the social warehouses remained 40 per cent down against the peak of 20.21 million metric tonnes seen in March at 5.31 million metric tonnes.

Also Read: Iron Ore Futures Predisposed to China’s Steel Industry Revival

Supply Chain Seems to Be Normalising

While the production and consumption are both up on toes, the iron ore supply chain, which has so far remained the foremost reason behind the iron ore rallying to a 52-week, now seems to be normalising with this time.  Around 101 vessels carrying ~16.56 million metric tonnes arrived at major ports of China (for the period ended 20 June 2020).

Also Read: Iron Ore- The Rally From 15-Week High to a 52-Week High

The recent shipment of 16.56 million metric tonnes was up by 4.19 million metric tonnes as compared to the last period and up by 5.5 million metric tonnes against the previous corresponding period.

The indication of a recovery in the supply chain is evident with iron ore deliveries from Australian ports increasing by 1.73 million metric tonnes against the previous period to stand at 18.36 million metric tonnes (as on 20 June 2020), which also remained 4.24 million metric tonnes higher against the previous corresponding period.

However, the Brazilian supply chain is still in pressure due to weather challenges and the rising number of COVID-19 cases across major iron ore operations of Vale, impacting the workforce, resulting in a reduced supply from Brazilian ports by 990,000 metric tonnes against the previous week to stand at 5.56 million metric tonnes, down by 1.34 million metric tonnes against pcp.

 Also Read: Iron Ore Exports Cross Three Digit Mark, would it Sustain?

ASX-Listed Iron Ore Stocks

ASX-listed iron ore stocks are now trading under pressure, and a majority of them are now retracing from their recent multi-period highs. Champion Iron Limited (ASX:CIA), which rallied to $2.860 (intraday high on 8 June 2020), plunged to mark a recent low of $2.360 (as on 15 June 2020). Since then the stock is slightly recovering but is showing weak momentum to presently trade at $2.723 (as on 25 June 2020 12:51 PM AEST), down by 2.685 per cent against its previous close on ASX.

Likewise, other miners such as BHP Group Limited (ASX:BHP), Rio Tinto Limited (ASX:RIO), Fortescue Metals Group Limited (ASX:FMG) are following the same trajectory with BHP trading down by 2.11 per cent, Rio trading down by 1.56 per cent, and FMG trading down by 1.86 per cent (12:51 PM AEST), against their previous close on ASX (as on 25 June 2020).

 


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