After performing strongly last
month, imported iron ore prices in China will likely meet downward risk in
July, as supply-demand fundamentals for the commodity may gradually worsen from
those in June and become a drag on prices, Mysteel concluded in its latest
monthly report.
Throughout last month, Mysteel
SEADEX 62% Australian Fines had increased to $112.15/dmt CFR Qingdao as of June
30, up by $7/dmt from June 1. Also, Mysteel PORTDEX 62% Fe Australian fines
index grew by Yuan 65/wmt ($8.9/wmt) from the beginning of last month to reach
Yuan 878/wmt FOT Qingdao and including the 13% VAT on June 30.
Last month, the rather buoyant
fundamentals of China's imported iron ore market lent healthy support to
prices, Mysteel Global noted.
"The resumption of
blast-furnace steel production among integrated mills in June was more
pronounced than many market insiders had expected," a Shanghai-based
market watcher pointed out, saying that these mills were active in lifting
their output, so long as they could still earn some money when selling finished
steel.
The blast furnace capacity
utilization rate among the 247 Chinese steel mills under Mysteel's regular
survey climbed steadily in June to reach a 27-month high of 91.98% by June 29,
up by a total of 2.05 percentage points on month.
Consequently, steelmakers' demand
for iron ore during the ramp-up period remained firm in June, according to him.
"So portside iron ore stocks remained largely steady, even though imported
iron ore supply increased significantly in the meantime," he said.
The volume of ore arriving at
Chinese ports rose in June as a consequence of overseas miners beefing up
shipments to global destinations to deliver satisfying business results for
their end-June quarter or fiscal year, Mysteel Global noted.
Mysteel's latest survey showed
that iron ore stocks piled at the 45 major Chinese ports monitored reached
127.4 million tonnes by June 29, some 518,300 tonnes lower from the total on
May 25.
On the other hand, the reason
that most mills could still enjoy profits on steel sales - rather than the
losses common at this time of year - was because the fundamentals of finished
steel have stayed healthy so far, Mysteel's report pointed out. Summer is a
slow season for steel use in China when weather events hamper construction, as
reported.
Nevertheless, July will see even
higher temperatures in many regions across the country, and the consequent fall
in steel consumption may lead to a risk of steel stocks accumulating, the
report warned.
In this way, many steel mills
will no longer be able to enjoy profits from finished steel sales, and some
mills' iron ore demand will shrink if they choose to scale back steel
production after enduring losses for some time, according to the report.
In fact, the average profit that
steelmakers in North China's Hebei earned from selling rebar on June 30 was a
meagre Yuan 1/t, narrowing by Yuan 17/t on month, Mysteel's tracking showed.
As a result, despite some
fluctuations, China's imported iron ore prices will eventually be lower at the
end of this month compared with prevailing levels, the report concluded.
Written by Lea Li, liye@mysteel.com
Steel Mint