China Iron Ore/Steel Markets Surging

We spoke with our friends at Platts and Joe Innace, Global Editorial Editor/Metals provided the following background from their perspective:

“On Monday, March 7, 2016, the seaborne iron ore market saw its biggest daily gain in the history of Platts’ IODEX (dating back to June 2008) as the National People’s Congress hosted in Beijing fueled strong confidence for a steel industry recovery. Platts assessed its 62% Fe IODEX at $64.20/dry mt CFR North China Monday, up $10.70/dmt on Friday’s close –a 20% surge. Previously, the highest percentage day-on-day increase was 9.6% on July 9, 2015.

Reason: Steel products are suddenly seeing stronger demand in China, because many construction projects are set to start in March as the weather gets warmer.  China’s National People’s Congress has also set the country’s GDP growth target for 2016 at a manageable and realistic range of 6.5%-7%, and aims to sustain that growth rate through 2020.

Confidence is everything, and China’s iron and steel market participants see the government rolling out some initiatives in property or infrastructure sectors to achieve GDP growth target.”

Some data highlights:

1)    Monday’s (+$10.70/dmt) is the biggest one-day jump in the history of Platts IODEX. The previous one-day record increase happened October 9, 2012 (+$7.75)
2)    The $10.70 increase to $64.20/dmt was a 20% jump on Friday’s close of $53.50/dmt and blew away the previous one-day percentage increase record of +9.6% on July 9, 2015
3)    The +$10.70/dmt increase also exceeded the largest one-day declines in the history of IODEX: There were two -$10/dmt declines—first Sep 1, 2008, and then again Oct 25, 2011.
4)    Monday’s price assessment, $64.20/dmt, is the highest level since mid-June, 2015—about nine months.

On Tuesday, there was some softening in the price of iron ore. Platts assessed its 62% Fe IODEX down (-$2.20/dmt) from Monday to $62/dry mt on Tuesday.
 
Most buyers did plenty of restocking Monday when the spot market price surged 20% in a single day. Today, price inquiries were more scarce in both the seaborne and China’s dockside markets. Tuesday transactions were maybe 25% the volume of Monday’s flurry of activity.
 
Nonetheless, finished steel prices in China are stronger, having gained in recent weeks. Steel prices increased slightly again Tuesday, with the Tangshan physical steel square billet price — a key barometer of steel demand in the country’s steelmaking hub  —  up Yuan 10/mt on Monday to Yuan 2,140/mt ($329/mt) ex-stock Tangshan.  Given higher finished steel prices and still-low raw material costs, many Chinese mills are again profitable, or will be soon. With this stronger downstream (steel price) performance, some market participants maintain that the iron ore market can be well supported at the $55/dmt level in the short-run.
 
Over the past few weeks, since February 1 through March 8, the price of iron ore—based on the IODEX daily assessments—is up a substantial 43%. (It was assessed at $43.35/dry mt on Feb 1 and $62/dmt March 8.

One of our Asian steel price and import/export sources provided us Chinese data from Sunday evening:

Q235 Billet in Tangshan hiked to 2,020 yuan/ton (311 dollars/ton) by the end of Sunday March 06, surging 240 yuan/ton (37 dollars/ton) during March 05-06 and having increased by approximately 500 yuan/ton (77 dollars/ton) since February 14, the Chinese return from Lunar New Year Holiday. There’s a strong bullish sentiment about more rises ahead.  

Construction steel prices in North China hiked as well. In Beijing and Tianjin, HRB400E 16-25mm rebar manufactured by Hebei Steel surged by 150-500 yuan/ton (23-31 dollars/ton) to 2,180-2,230 yuan/ton (335-343 dollars/ton). There were actual trades on that price level but most suppliers were unwilling to sell, with a number of them having stopped quotations.

In Tianjin, 4.5-11.5mm HRC hiked 300 yuan/ton (46 dollars/ton) from Friday March 04 to 2,450 yuan/ton (377 dollars/ton), however not many trades were made because most hot rolled band suppliers were taking time off.

16-25mm medium plate increased by 200 yuan/ton (31 dollars/ton) to 2,400 yuan/ton (369 dollars/ton) by noon, and no further rises in the after as quotations stopped.

In Tangshan, Hebei province, most construction steel supplies stopped taking orders after multiple price rises.
 
In many markets in North China, a number of suppliers stopped quotations and were reluctant to sell out.

In a special report from their China staff, Platts/SBB reported that the surge in steel prices has “unsettled rather than excited the market” in China. They reported, “Prices rocketed by Yuan 360/mt ($55/mt) as of Monday from last Friday yet without the support of any substantial improvement in fundamentals.”

Later in the day (Monday) TSI produced a special report on why iron ore prices were surging in China, “Driving the price for iron ore has been the news that not only have steel mills in China seen a halt in steel price falls, but the trend has in-fact reversed. By November 2015, prices for steel had fallen to their lowest levels since January 2002, with industry wags making comments that on a per-tonne basis, steel had become cheaper than cabbages. Prices in Shanghai have since risen over 19% from that nadir. As a result, demand and prices across the ferrous complex including both ore and coking coal have been rising fast, led by the domestic Chinese recovery.”

Metals and mining analyst, Chuck Bradford of Bradford Research told SMU in a note, “The last week has been especially positive for most metal prices with iron ore lagging until yesterday when it caught up with a nearly 20% surge in international markets. Aluminum and copper prices rose during the prior couple of weeks with domestic scrap prices especially strong in Friday.

Chinese Premier Li’s press conference last Saturday did not break new ground, in our opinion, although some blamed that it caused the iron ore price surge yesterday. The only positive we heard was the claim that the Chinese government has the ammunition to meet the growth forecasts, However, 10 million people were expected to go from poverty to middle class each of the next five years, but last year the number was 13 million. The cutback in steel capacity as well as aluminum and cement were unchanged. What wasn’t said was that there is a baby boom occurring in China was some forecasts of a 20% increase this year with all the available beds in the hospitals in Beijing already booked for the year. Obviously, this could be a real stimulus for the economy.

Chinese iron ore prices rose this morning by 1.2% to $63.30 a tonne. We would also note that yesterday, the new Roy Hill iron ore facility in Australia booked two ships to deliver 170,000 tonnes each to Qingdao, at approximately $3 a tonne. This is a new 55 million tonne mine complex which adds 5% to world seaborne iron ore supplies, but there appeared to be a lag after their initial reported shipments last December until today. The 90 million tonne S11 D project of Vale still isn’t shipping product but is apparently beginning to start up individual components of the plant. It is not expected to begin shipments until the second half.”

We heard on Monday morning from one of the steel mills here in the United States, “Importers starting to freak out with the staggering Chinese price increases and ore jump over the weekend. That should bolster the domestic increases a bit.”

We did speak to a couple of trading companies on Monday as well who advised SMU they were pulling offers as they wait to see what is happening in China and how it may impact prices. One trader told us their hot rolled offers out of a North African mill rose by $20-$30 per ton over the weekend. The offers are now at $400 per net ton, USA port. This is not a competitive number when domestic HRC can be had for $410 per ton… (prior to price increase announcement).

U.S. steel buyers need to remain aware of the movements in China as they could have immediate worldwide ripples, and those ripples could be in both directions should the jump in pricing be nothing more than short-term speculation.

Stay tuned for more details as we go to work with our trading and international network of contacts to gather more details.