CRU: Iron Ore Falls by $11 /dmt in the Past Week

Chinese domestic steel prices have fallen sharply over the past week, as futures prices plummeted on weak market sentiment. HRC prices registered the largest weekly fall of RMB90 /t over the past six months, while rebar prices fell by RMB70 /t, erasing most of the gains in the previous five weeks. The implied end-use demand for steel flat products changed little w/w, but inventories had built up for three weeks in a row. This suggested excessive supply in the market that placed downward pressure on prices. Having said that, rebar prices also fell, despite a continuous improvement in the underlying demand that was evidenced by the ongoing destocking across the supply chain. Such a divergent movement between prices and fundamental changes implies an overall sentiment downbeat. 

Lower steel prices and margins, combined with stricter operating restrictions in Tangshan, reduced steel and hot metal output and hence iron ore and coke demand. Sintering operations in the region are expected to be disrupted by the new restrictions, which come after worsening air quality in the northern parts of China. Iron ore port outflow stayed elevated on the back of some pre-holiday restocking, but the vessel queue at the Chinese seashore is now shortened to 142 compared to 188 four weeks ago. Port inventories have now come up to ~115 Mt for the first time since May. 

On the supply side, Port Hedland shipments rose rapidly in the past week and have again exceeded 11 Mt, up from ~9 Mt two weeks ago. The improvement comes after rising shipments from FMG, which struggled earlier in the month. Our sources have highlighted relatively weak availability of low-grade material, which has been used for blending with higher-grade material from Brazil. In South Africa, the country has eased its lockdown further and CRU has observed a further rise in weekly iron ore exports. In India, domestic iron ore demand is picking up and a slow restart of auctioned mines has resulted in a pellet feed shortage in the country. Therefore, pellet exports are expected to be significantly lower in the coming months and pellet imports are already happening. 

We expect the price fall to continue. Port throughput has improved and Australian arrivals will increase in the coming week. The negative sentiment in China is expected to continue and steel margins are in a negative trend while sintering restrictions in Tangshan are expected to dampen fines demand somewhat.

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