STEELMAKING RAW MATERIALS MONTHLY: Seaborne coking coal, iron ore prices find a floor

The internationalization of Dalian Commodity Exchange-traded iron ore futures and the sustainability of Chinese buyers’ appetite for imported premium hard coking coal will be the focus of the market this month, after prices of the steelmaking raw materials retreated in April.

Iron Ore
Seaborne prices for iron ore rebounded in the middle of April, with steel mills in China resuming normal production rates post winter curtailments.

“Given strong margins, blast furnace utilization rates in China have been on the rise since the end of the winter caps in mid-March, with rates in northern China in particular surging in the past five weeks,” Metal Bulletin Research analyst Miriam Falk said.

On a month-on-month basis, however, iron ore prices averaged lower amid softening steel prices in China and ample iron ore port stocks in the country.

Metal Bulletin’s 62% Fe Iron Ore Index averaged $65.22 per tonne cfr China in April, down 6.8% from the previous month.

On the supply side, disruptions to Anglo American’s Minas Rio iron ore operations in Brazil triggered some concern about tightness in the high-grade iron ore market.

Anglo American announced last month that it did not expect to see any material production at the operation for the rest of the year.

“If production is suspended for a full eight months, we calculate that it will remove around 10 million tonnes of high-grade iron ore from the market,” Falk added.

Metal Bulletin’s 65% Fe Iron Ore Index averaged $83.01 per tonne cfr China in April, down 4.1% from the level in March.

Prices for low-grade iron ore meanwhile remain under pressure, although Fortescue Metals Group managed to achieve a narrower discount for its May shipments.

The miner has also flagged expectations that demand for its products will improve as Chinese steelmakers’ margins narrow.

The miner, which shipped its billionth tonne of ore last month, reported an increase in ex-China sales in the first quarter of the year.

“In financial year 2017, FMG shipped 170.4 million tonnes of iron ore, of which around 5% (approximately 8.5 million tonnes) went to non- China markets,” ceo Elizabeth Gaines said in a statement.

“In the January-March 2018 quarter, the miner shipped 11% to non-China markets, representing approximately 4.2 million tonnes for the period,” she added.

Metal Bulletin’s 58% Fe Iron Ore Index averaged $38.57 per tonne cfr China in April, down 4% from the previous month.

Meanwhile, offers on Indian-origin materials, including iron ore pellets, to China were also observed in April.

Earlier in April, India’s top court had allowed exports of some iron ore tonnages from the state of Goa after a previous ruling cancelled 88 mining licenses in the state.

Meanwhile, port prices in China stayed below the seaborne levels for most of April, with the gap between the 62% Fe Iron Ore cfr China index and the dollar-implied port index reaching a maximum of $2.70 per tonne in April, compared with $2.80 per tonne a month earlier.

Stocks at Chinese ports stood at 159.08 million tonnes as on April 27, compared with 159.80 million tonnes on March 29, according to a local information provider’s data.

Meanwhile, the Australian government flagged expectations of a decrease in iron ore prices year-on-year in 2018 to $61.80 per tonne fob Australia, down from last year’s $65.80 per tonne.

Metal Bulletin Research (MBR) forecasts iron ore fines index to continue its downward path this quarter in line with historical drop in prices seen in the months of May and June.

Coking coal
Metal Bulletin’s premium hard coking coal indices dropped to the lowest level since July last year in April, although prices had bottomed out by the end of the month amid robust buying from China.

China accounted for 86% of the total trades captured by Metal Bulletin in April. In March, China had accounted for 68% of the total trades captured by Metal Bulletin.

Spot trades captured by Metal Bulletin rose by 20% month-on-month in April, underlining the resurgence of buying interest from the largest spot buyer after price levels dropped sharply.

Metal Bulletin’s fob Australia Premium Hard Coking Coal Index averaged $186.79 per tonne in April, down 14% from the level in March.

Metal Bulletin’s cfr China Premium Hard Coking Coal Index averaged $193.12 per tonne last month, down 12.2% from the average in March.

Prices had been on a steady decline since March, with traders lowering their offer prices in a bid to cut losses and miners offering ample spot cargoes.

Weakness in demand from coke makers in China for most of April was also heard to be weighing on coking coal prices.

The abundant availability of premium hard coking coal cargoes in recent months is in contrast to the situation in the December quarter of last year, when a vessel queue at the main coal exporting hub of Dalrymple bay Coal Terminal in Queensland and production issues tightened seaborne supply.

BHP Billiton produced 10.4 million tonnes of metallurgical coal at its Queensland mines in the January-March period, up 2% from a year earlier and 7% higher than the preceding quarter.

Concerns about rail allocations subsided during the month, despite Queensland rail freight operator Aurizon reiterating a potential 20-million-tonne-per-year reduction in throughput.

On April 30, Aurizon applied for a judicial review of the Queensland Competition Authority’s proposal asking the operator to slash its maintenance spend and cap revenue, it said.

“Rail and port maintenance issues pose a major risk to metallurgical coal exports in 2018, a repeat of 2017 — when bad weather and damage and problems with transport infrastructure also hampered exports,” the Australian government said in its resources and quarterly review published last month.

Market sources, however, remain skeptical about a 20-million-tpy reduction in throughput as “many stakeholders stand to lose financially from such a reduction”.

Towards the end of the month, seaborne prices found a floor amid robust buying activity from China after prices for premium materials dropped to the $180-185-per-tonne level.

A slight uptick in domestic metallurgical coke prices towards the second half of the month also contributed to stabilizing coking coal prices.

Rail allocations in Queensland and sustainability of Chinese buyers’ interest for seaborne materials will determine direction this month, according to market participants.

“Steel prices reached multi-high levels last year and although they have softened the past month, they are high enough to boost the wide gap between income and procurement costs for Chinese mills,” Falk said.

MBR cautioned about potential for overproduction by steel mills amid rising blast furnace utilization rates in China since the end of the winter caps in mid-March.

“On balance, steel prices are likely to weaken under a growing weight of finished stocks and upcoming seasonal slow demand, which in turn will put downside pressure on feedstock prices,” Falk added.

Domestic Chinese prices for rebar averaged mildly lower month on month in April, though prices for hot-rolled coil were higher.

Average export prices for both products meanwhile were down month on month.
Further Reading:
FOCUS: The rising importance of portside iron ore trading in China

here to find a history of Metal Bulletin’s steelmaking raw materials prices.

Metal Bulletin’s daily coking coal indices’ methodology can be found on this link, while the methodology for iron ore indices can be found here.