Chinese Iron Ore & Steel Traders Under Pressure

He went on to advise us that between the 11th of April and the 18th of April the Chinese steel mills took ore inventories down by 150,000 metric tons. That is 21,428 metric tons per day, a far cry from what is needed in order to deplete inventories. In his opinion only as much iron ore as is being needed is being taken on a week to week basis and the ore inventories should increase.

There is news out of China this morning regarding a potential investigation into the use of iron ore stocks by China’s banking regulator. This has caused a sell-off in iron ore futures as of today (Monday, April 28th). The Steel Index has 62% Fe fines at $108.6/dmt (dry metric ton) which is down 4.7 percent over the past week and is approaching the 52-week low of $104.7/dmt (CFR Tianjin Port).

Our trading source in Asia is advising that many of the trading companies, as well as mills and those holding steel inventories, are strapped for cash. He reports, “Mills, Traders, Stockists, are all strapped for cash now and these JV’s with Cash Transfusion Groups like Minmetals, Sinosteel, etc., isn’t turning out as Rosy as expected because the Groups can’t find homes for the steel produced to repay for the ore or orders for Steel to repay for the Ore sent to the Mills on open terms by these Groups.”

On Friday of this past week our trading source reported steel pricing for exports to Europe as follows (although no business is being conducted at these levels):

HRC = USD520/mt (FOB ST. LSD for 2.5mm and up – RRQ Grade (re-rolling quality)
HRC, CRC = USD620/mt FOB ST. LSD for 0.80mm and up – Al Killed Grades,
GI = USD640/mt FOB ST. LSD for 0.80mm and up, Zinc 140 gr. – Structural Grades,
Wire Rods = USD510/mt FOB ST. LSD, including 5.5mm in SAE1006/1008 Semi Killed Quality,
Debars = USD505/mt FOB ST. LSD, 10mm and up in BS4449 Gr. 460B Grade, British Standard (Min. 460Mpa Yield).

*Note: 108.5 million metric ton iron ore stock levels on April 18th was based on Platts data, domestic (Chinese) sources had inventories at 110.58 million metric tons at that time. Either way inventories are at record highs based on this week’s numbers.

Our trading source told us on Monday, April 28th, “As for Historic Port Levels of Iron Ore, we are at this level right now John as this is the worst it has been Production Wise domestically on Steel, Financials, Exports etc… and you will see after the Labor Day Holiday coming on Thursday this week that the Banks start making strong measures on recuperating outstanding loans on Iron Ore.”

Note: Tuesday TSI 62% Fe number was $108.3/dmt. The Platts Iron Ore Index has it at $107.50.