SHANGHAI, Aug 16 (SMM) – Spot iron ore at Chinese ports has attracted more trading than forward, imported cargoes as yuan depreciates.
This, coupled with robust demand and steel mills’ preference for higher-grade ore, has seen declines in port stocks of Australian materials including Mac fines, Newman fines and Pilbara Blend fines (MNP).
According to an SMM survey, the proportion of MNP inventory across four major ports Qingdao, Rizhao, Jingtang and Caofeidian has shrunk since the start of July. At Rizhao port, MNP inventory dropped 21% over the past six to seven weeks.
Operating rates across Chinese blast furnaces have been on the rise since the start of the year. SMM survey showed the average rate rose from 85.2% to 89.4% as of Thursday August 16.
Higher coke prices also contributed to steel mills’ preference for higher-grade iron ore as they look to cut the amount of coke they use. Coke prices are now 20% higher than they were a year ago.
As of August 16, coke accounts for over 42% of the production cost of molten iron, SMM calculates.
We believe iron ore prices will continue to be supported in the short term on such demand, but China's stricter environmental grip on the steel industry would weigh on its longer-term outlook.
In addition, pressure on the supply side may emerge in the remaining months of this year.
Brazil's Vale is expected to produce some 30 million mt more iron ore in the second half of the year than the first half, as it has only achieved 45% of the annual target during January-June due to nationwide trucker strike and heavy rain.
BHP is also expected to increase output in the second half of the year as its target was completed by 48% in the first half.