China’s portside iron ore widens discount to seaborne
Portside prices of high-grade, mainstream iron ore fines in China have stayed at a sharp discount to seaborne fines since 8 December, after holding at a premium for most of last year.
The Argus PCX price for 62pc portside fines reached its widest ever discount to the Argus ICX price for 62pc imported fines, at $4.50/t, on 15 December and again on 8 January. The PCX was at a discount of $3.85/t to the ICX yesterday.
Argus started daily assessments of portside PB fines, Newman fines, BRBF fines and SSF fines prices and began publishing the PCX index on 4 September 2017. Argus had previously assessed prices of PB fines and Yandi fines on a weekly basis since 2014.
The seaborne-equivalent price of high-grade portside fines, such as PB fines, had been at a premium to seaborne fines for most of 2017, as mills preferred to buy smaller lots from yuan-denominated portside markets rather than larger seaborne cargoes. Portside stocks remained high through the year, relieving mills’ concerns about availability. China’s portside iron ore stocks increased by 28pc in 2017, to 147mn t at the end of the year.
The PCX was at a premium to the ICX from 4 September to 3 November, its longest such streak. The PCX was then mostly at a modest discount to the ICX of $0.20-1.80/t until 7 December, although it occasionally moved to a premium to seaborne fines. The discount of the PCX to the ICX has since ranged from $1.75-4.50/t, indicating a pronounced preference for seaborne cargoes.
China has cut pig iron output by 50pc from 15 November to 15 March, sharply reducing near-term demand for iron ore. The China Steel Logistics Professionals Committee expects the winter restrictions to result in a total loss of 30mn t of crude steel output. Steel demand has also begun to slow down in line with falling prices and profit margins, as construction activity in north China halts for the winter. Mills typically buy small lots of 2,000-30,000t from portside markets to meet immediate needs, so buying has slowed during the winter months.
But mills and trading firms have stepped up stockpiling of iron ore for the week-long lunar new year holidays beginning 15 February, as well as the following period. Steel demand is expected to spike after the holidays as construction restarts in the spring. The lifting of the winter output restrictions on 16 March will also boost iron ore demand. Mills have been booking January and February delivery cargoes of high-grade, 62pc basis fines, mostly PB fines and Newman fines, to avoid being caught short of stocks when steel demand revives and output is cranked up. Some market participants are looking to build 30-60 days of iron ore stocks, instead of the typical 25-27 days, to ensure sufficient raw material availability in the first quarter of 2018.
Portside traders are concerned about the sharp discounts to seaborne fines, as they face losses of up to $3-4/t if the trend continues into February. Traders that bought January-delivery cargoes are finding it tough to reduce portside prices, despite weak demand, as they try to avoid making losses. But seaborne iron prices are inching closer to strong resistance at $80/t — the ICX was assessed at $79.10/t yesterday — meaning prices are likely to either post only muted gains, or even undergo a short-term correction.