Iron ore price drops to 7-month low

29 May 2017

After recovering some of the losses suffered at the beginning of May in recent days, the iron ore price turned sharply lower again with a surprise downgrade spooking markets in top consumer China.

The Northern China import price of 62% Fe content ore fell 4.2% to $59.30 per dry metric tonne, the lowest since mid-November according to data supplied by The Steel Index. Benchmark prices are down a whopping 37% from their February highs.

Lower grade ore with 58% iron content declined to $43.80 a tonne, while 65% Fe dipped to $71.50, also a seven month low.The weakness comes on the back of fresh worries about the health of the Chinese which consumes nearly three-quarters of the world’s seaborne ore.

Ratings agency Moody’s downgraded the country’s sovereign debt for the first time since 1989, citing concerns about  diminishing returns from Beijing’s debt-fuelled economic stimulus programs and the country’s overheated property and building markets.

While China’s output of steel reached record daily rates in April, record high stockpiles of nearly 140m tonnes have sparked concern over the actual strength of end-user demand.According to data from Steel home so far in 2017 inventories at the country’s major ports have risen by just over 2 million, surpassing the 20.8 million added over the whole of last year.

Elevated stocks have not dampened importer enthusiasm however with total imports for the first four month of the year climbing nearly 9% to 353 million tonnes. Another headwind for iron ore demand is increasing use of scrap in China.

In the past low pig iron prices and little recycling meant scrap did not play much of a part in the domestic industry, especially when compared to places like Europe where steelmakers charge up to around 18% scrap in basic oxygen furnaces (around 20% scrap is a technical limitation).

Chinese steel companies are retooling to take advantage of a slump in scrap (typically around 90% Fe content) prices “amid a glut resulting from a nationwide crackdown on induction furnaces, an official at China Baowu Steel Group said this week”:

Assuming output of 700 million mt/year of hot metal, an increase in scrap charge rates to 15% from 9% would see additional hot metal output of 42 million mt, displacing 70 million mt of iron ore, the Baowu official.

Source- mining.com