IRON ORE WEEK: Four things we learned in Singapore

Steel mill margins still key
High-grade iron ore demand was healthy last year while the Chinese government focused on its Blue Sky project and supply-side reforms, in turn prompting steel mills to consume more high-grade iron ore, assistant general manager Ji Chao of Baoshan Iron & Steel said on the panel.

Chao also warned, however, that mills’ procurement heavily depends on profitability, although blast furnace (BF) productivity and emission cuts are important. If high-grade iron ore premiums are too high, demand will be offset, Chao added.

Iron ore prices have soared since Vale’s tailings dam accident in Brazil on January 25.

Fastmarkets’ MB 65% Fe Iron Ore Index averaged $95.24 per tonne in the first quarter of 2019, compared with $91.57 per tonne in the fourth quarter of 2018 and $90.30 per tonne in January-March of 2018.

Steel mill’s profit margins have generally improved since the December quarter, some traders said, while other trade sources believe that now production from steel mills is so high, the environmental restrictions imposed are likely to target production levels, which could prompt mills to consume high-grade iron ore for production efficiency.

Dalian Commodity Exchange May contract delivery to sway short-term market
The price of iron ore at Chinese ports – including brands such as Jimblebar fines that meet the physical delivery requirements of the Dalian Commodity Exchange’s iron ore futures contract – could be supported before the delivery of May 2019 contract, which is due to end on May 22, sources said.

This is because it is profitable to buy such port material for physical delivery, therefore port sellers will hold their offers for Jimblebar fines at relatively steady levels to share the profit, the sources added.

After the May delivery however, port prices could be under some pressure, with those who took the delivery probably keen to let go of the physical cargoes soon.

With BHP lowering the typical quality of Jimblebar fines from July 1, prices of the lower-rank 62% Fe fines could weaken later on but are still propped up by the delivery factor in short term.

Vale’s tight supply buoys Iron Ore Carajas price
Although the heavy rains in north Brazil that restricted Vale’s material shipments, mainly Iron Ore Carajas, have subsided, IOCJ shipments remain slow because the whole supply chain from mine to port takes time to return to full capacity, a trading source told Fastmarkets.

There has been limited availability of spot seaborne IOCJ cargoes as a result recently. Vale only has a handful of shipments to sell on a spot basis, while Chinese mills hardly have any spare cargoes to offer in the secondary market, the source said.

Vale has allocated several shipments of IOCJ from its Malaysia distribution center to China to make up for the supply gap from north Brazil, which relates to the shortage of high-silica fines from south Brazil used to blend into the Brazilian Blend fines after the production halts following the tailings dam accident in late January.

On the demand side for IOCJ, however, Chinese mills’ consumption has not actually increased that much given the historically high price. Some mills have even reduced the use of IOCJ recently, Fastmarkets learned.

Iron ore prices backed by high steel output in China; steel markets to watch
The market participants that Fastmarkets spoke to during Iron Ore Week were generally positive on iron ore prices due to the solid consumption requirements from Chinese steelmakers operating at relatively high rates of capacity utilization.

There are concerns that prices for finished steel products could wane given high output and weakening demand while the market enters the traditionally slow summer season between June and August with more rains and hot weather.

If steel prices drop significantly, mill margins will narrow, which would shake iron ore prices and affect grade differentials, Fastmarkets learned.