China’s iron ore lump buying peak shifts to September

10-Sept-2018

Autumn-winter environmental restrictions on steel production has shifted China’s peak period for lump buying to September from last year rather than January-April in previous years.

China imposed a 50pc reduction in blast furnace output along with sintering and pelletising restrictions in 28 north China cities from November-March last year, along with output limitations in other cities. Similar restrictions ranging from 30-50pc of pig iron output will start from 1 October this year. Sintering and pelletising curbs may be more extensive than last year. Another 52 cities may have varying degrees of production curbs that will be decided by local governments.

The year’s highs for Argus assessed lump prices were in January for 2014 and 2015 and in April for 2016. This year the Argus 63pc Fe seaborne lump price touched the year’s high yesterday at a 35.30¢/dry metric tonne unit (dmtu) premium to the Argus ICX 62pc seaborne fines price. This is the second highest level since the index high was reported at 42.29¢/dmtu on 22 September 2017. Argus started publishing lump premiums in May 2013.

The autumn-winter restrictions from last year coincided with a period of sharp growth in steel profitability. Robust infrastructure investment growth last year and a sharp spike in real estate investment growth this year has boosted steel mill profits to above 1,000 yuan/t ($146/t). Steel mills have reported a near doubling of profits for January-July this year. So mills will step up use of direct charge ore such as lump and pellet to get around restrictions on sintering and pelletising, while they will possibly use more scrap in the converter to minimise the impact of blast furnace output restrictions.

Tangshan city, China’s largest steel production centre, this year imposed blast furnace, sintering and pelletising restrictions of up to 50pc across various counties from 21 July. Mills will continue to operate with these restrictions until the autumn-winter output cuts take effect on 1 October.

Seaborne lump prices may have further room to rise in the short term with tight stocks of popular Australian grades, such as Newman blend lump, in Chinese ports. A sharp spike in imported pellet prices since August has also made lump use more economically viable. Increased demand for Indian pellet from non-traditional importers such as Europe, Japan and South Korea have lifted prices in the Chinese seaborne market to around $160/dmt, around $30/dmt higher than the previous record high of $130/dmt in December 2017.

Source: ARGUS