IRON ORE DAILY: Prices down despite strong PMI in March

Iron ore prices continued their downtrend on Wednesday March 31, with trading sentiment still depressed amid low liquidity at ports, sources said.

Market chatter about potential plans to cut steel industry emissions and downgrade more mills in Tangshan also drew market attention, sources told Fastmarkets.

Fastmarkets iron ore indices

62% Fe fines, cfr Qingdao: $165.15 per tonne, down $1.43 per tonne
62% Fe low-alumina fines, cfr Qingdao: $166.58 per tonne, down $0.64 per tonne
58% Fe fines high-grade premium, cfr Qingdao: $146.99 per tonne, down $0.51 per tonne
65% Fe Brazil-origin fines, cfr Qingdao: $194.10 per tonne, down $0.90 per tonne
62% Fe fines, fot Qingdao: 1,126 yuan per wet metric tonne (implied 62% Fe China Port Price: $159.77 per dry tonne), down by 8 yuan per wmt

Key drivers
The most-traded iron ore futures contract on the Dalian Commodity Exchange (DCE) switched from May to September, which fell sharply in the afternoon before ending the day down by 3.7% from Tuesday’s closing price of 967 yuan ($147) per tonne.

The iron ore forward-month swap contracts on the Singapore Exchange (SGX) also decreased. By 6:17pm Singapore time, the most-traded May contract had registered a decrease of $1.01 per tonne from Tuesday’s settlement price of $156.61 per tonne.

Trading sentiment remained weak with limited trading activity at ports despite China’s strong Purchasing Managers’ Index (PMI) in March, sources said.

The official manufacturing PMI reached 51.9% in March, up from 50.6% in February, China’s National Bureau of Statistics data shows.

One trading source in southern China said a higher March PMI implied strong economic recovery in China, however, iron ore demand had been relatively weak amid emissions restrictions, especially because port trading was still limited.

Less liquidity resulted in lower iron ore prices but considering stable steel demand and prices, mills’ margins were still healthy and reduced iron ore prices could attract buyers soon, the same trading source said.

There was some market chatter about the Chinese government’s potential plans around lowering carbon emissions, sources told Fastmarkets.

A trading source in Shanghai said the market chatter covered decreasing certain steel products’ export tax rebate, lowering or cancelling certain steel products’ imports tax and reducing China’s domestic iron ore miners’ tax.

These potential measures could depress iron ore demand due to a great influx of steel imports so in afternoon trading, iron ore futures fell sharply. Although these new measures are yet to be confirmed, market participants are still expecting new policies to cut emissions in steel industry in future, the same trading source said.

Four more mills in Tangshan have been downgraded recently, which means stricter emissions restrictions could be implemented in these mills and, therefore, further contribute to the weak sentiment in iron ore due to demand concerns, a buyer source in southern China told Fastmarkets.

Quote of the day
“Some mills were heard to be selling iron ore lump because of the approaching rainy season. When the weather gets wet, these mills typically prefer to use more pellet instead because lump may have more handling issues and require additional rounds of screening,” a trading source in Singapore said.

Trades/offers/bids heard in the market
Vale, Globalore, 190,000 tonnes of 65% Fe Iron Ore Carajas fines, traded at $194.05 per tonne cfr China, bill of lading dated March 29.

BHP, Globalore, 80,000 tonnes of 62% Fe Jimblebar fines, traded at the May average of two 62% Fe indices plus a premium of $2.15 per tonne, May arrival.

Beijing Iron Ore Trading Center (Corex), joint cargo, 80,000 tonnes of 60.8% Fe Mining Area C fines, traded at the May average of two 62% Fe indices plus a premium of $2.60 per tonne; and 110,000 tonnes of 60.5% Fe Jimblebar fines, traded at the May average of two 62% Fe indices plus a premium of $1.60 per tonne, laycan May 1-10.

Rio Tinto, Globalore, 170,000 tonnes of 62% Fe Pilbara Blend fines, offered at $163.60 per tonne cfr China or at the May average of a 62% Fe index plus a premium of $8.05 per tonne, laycan May 2-11 (bid made at $162.90 per tonne cfr or at the May average of a 62% Fe index plus a premium of $7.15 per tonne).

Corex, 80,000 tonnes of 57% Fe Yandi fines, offered at the May average of two 62% Fe indices plus a premium of $1.80 per tonne, May arrival (bid made at the May average of two 62% Fe indices plus a premium of $1 per tonne).

Port prices
Pilbara Blend fines were traded at 1,105-1,135 yuan per wmt in Shandong province, Tangshan and Lianyungang city on Wednesday, compared with 1,105-1,135 yuan per wmt on Tuesday.

The latest range is equivalent to about $157-161 per tonne in the seaborne market.

Dalian Commodity Exchange
The most-traded September iron ore futures contract closed at 931 yuan ($142) per tonne on Wednesday, down by 36 yuan per tonne from Tuesday’s close.

Alex Theo in Singapore and Min Li in Shanghai contributed to this article.

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