Iron ore prices sank, with benchmark CME Iron ore 62% Fe futures (TIOc1) trading lower from the level of $86.76 (closing of 6th March 2019) to the present level of around $85.15 and SGX Iron ore trading flat around $70.79.
The prices plunged in the presence of high China domestic steel inventory and high Iron ore inventory at Chinese ports. The domestic steel inventory rose by 3.64% to 18.62 million tonnes (for the week ended 1st March 2019), and Iron ore Inventory at Chinese port surged by 1.68% to 135.81 million tonnes (for the week ended 8th March 2019). As of week, ended 8th March, iron stocks rose across 35 Chinese ports and grew by 2.24 million as compared to the previous week to end at 135.81 million tonnes.
The building of the iron ore inventory was mainly due to the high arrivals in the north and east ports of China and less delivery from the ports on account of high domestic steel inventory for the previous week ended 1st March.
As per the Shanghai Metal Market (SMM) data, daily average deliveries of iron ore from the ports decreased by 271,000Mt (for the week ended 8th March) and noted at 2.42 million, as Tangshan and Wuan provinces extended controls on sintering. The Wuan provinces also required 14 mills to close 60% of blast furnace capacity.
The restrictions on transportation also exerted pressure on iron ore prices, as Beijing restricted the supply from Jingtang and Caofeidian port as it banned the transportation from both the ports from 7th March. In the absence of raw material demand and rising domestic steel inventories, mills were cautious about procuring more iron ore for the steel production, which impacted on the rising iron ore prices.
The domestic steel output is rising despite the Chinese government action to curb environmental pollution, which marked the closure of a few mills in various provinces across China. The government may further extend the closure to stay in line with the Euro 6 emission standards, which in turn is building the fear among mill operators to procure iron ore and raising the output of steel.
However, the increased measure by the Chinese government to curb the pollution level is likely to support the prices of high-grade iron ore. The 65% Fe fines Qingdao Port (IOPI65) is hovering flat around 726 RMB/mt.
The high-grade iron ore, which can be provided by major iron ore miners like Vales, BHP, Rio Tinto is relatively stable. In the absence of Vale’s iron ore, rivals like Rio Tinto and BHP can position themselves to take advantage of the price movement. In the recent announcement by Rio Tinto (ASX: RIO), the company uplifted its mineral resource estimates of Pilbara Iron ore deposit.
The global steel demand is also facing a halt over no visible outcome from U.S-China trade talks and investors will be eyeing on the development over the status quo in the U.S-China trade talks to reckon the overall economic outlook further and gauge the direction of steel demand and its impact on iron ore prices.
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