China consumers defer coal, iron-ore cargo
Tuesday, 22 May 2012 | 00:00
Some commodity trading houses have begun to defer iron ore shipments to China, holding out for lower prices
amid high port inventories and a sharp economic downturn, traders said Monday.
Bouts of consumption weakness in past years have regularly produced import deferrals, especially among marginal traders, and a sudden slowdown last month in the world's second-largest economy set the stage for the trend's reprise.
Still, traders said deferred volumes were not large.
"During a period like this, traders are naturally going to consider delaying shipments where it's possible and have started doing so," the president of a Hong Kong- and Guangxi-based ore trading house said.
The deferrals so far appears limited. Major Chinese steel makers, which consume 60% of the world's iron ore, haven't begun to cancel shipments yet, traders said.
Spot iron ore import prices have fallen 8% since mid-April to $139 a metric ton, signalling a deteriorating macroeconomic outlook that saw national industrial production growth slow sharply to 9.3% from 11.9% in March.
"We haven't been buying because we're looking for bargains ourselves, since prices are falling anyway," a trader with Henan Armco & Metawise Trading Co. Ltd. said.
Steel mills buying on quarterly-contract terms are also likely holding off on fresh bookings.
Quarterly contract prices are based, with slight variations, on the spot average over the preceding three months. Because prices were steadily rising from mid-February to mid-April, importers would likely wait at least a few more weeks to see if the downtrend persists, which would then yield a better discount on the quarterly term.
The steel sector, hamstrung by over-capacity and volatile prices, has posted weak profits in the last year. Iron ore imports have been declining every month since February.
High iron ore stocks of around 96.7 million tons-though these are off record-highs exceeding 100 million tons in April-are also a factor in the trade slowdown, according to data from Mysteel consultancy.
Steel mills are currently running only about 40%-50% of their full capacity levels, an analyst said.
"It's quite normal for traders to seek deferrals during such times," said Zhu Mingyuan, steel analyst for Orient Futures. "Iron ore stocks are very high and downstream demand is conspicuously weak."
Source: Market Watch
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