Greater seaborne arrivals, lower demand to drag on iron ore prices in May

SHANGHAI, Apr 29 (SMM) – Higher seaborne supplies, lower demand on environmental pressure is likely to weigh iron ore prices in May, but current low inventories across ports will cap the decline, SMM expects.  

Stocks of iron ore across Chinese ports fell last week as steelmakers purchases for the upcoming Labour Day holiday offset greater arrivals that recovered from cyclones in Australia. 

SMM data showed that iron ore stocks across 35 Chinese ports shrank 10.29 million mt from the end of March to stand at 125.46 million mt as of Friday April 26, down 20.99 million mt year on year.

Daily average iron ore deliveries leaving those ports climbed 165,000 mt from end-March to 2.64 million mt last week, up 118,000 mt on the year. But the daily deliveries from ports are unlikely to further expand this week as demand falls after top steelmaking hubs, Tangshan and Handan, extended smog-alerts to the end of the month.

An SMM survey found that some 16.76 million mt of iron ore departed Australian ports in mid-April, up 1.1 million mt on the month and up 1.9 million mt from a year earlier. Shipments from Brazilian ports rebounded to 3.55 million mt in mid-April, though this had yet to recover to the typical level of 4.14 million mt a year ago. 

SMM assessed profits of rebar at 840 yuan/mt and profits of hot-rolled coil at 635 yuan/mt as of Friday April 26, based on seaborne iron ore prices of $92/mt. These compared with profits of 1,100 yuan/mt and 1,250 yuan/mt a year earlier, respectively, as costs of iron ore stood some 200 yuan/mt lower at $66/mt. 

Operating rates of blast furnaces advanced 1.05 percentage points month on month, to 88.04% in April, SMM data showed. There is still upward room in the rate at the start of May, but production curbs in the non-heating season across steel mills in Tangshan may limit the growth. 

Despite the same cut proportion required, greater capacity will be covered in the May cutback in Tangshan compared with April, SMM learned. 

Inventories of rebar across smelters and social warehouses continued to shrink in the week ended Thursday April 25, but declines slowed from a week earlier as supplies increased. Higher prices lifted profits at steel mills and may continue to expand their output in May. This is expected to grow pressure on prices of steel, as well as on iron ore. 

Overall inventories of rebar declined 4.4% and posted 8.55 million mt as of Thursday, after they shrank 6.6% in the prior week.

While robust demand from construction will extend to May, rainy weather will slow the procurement by downstream consumers. SMM learned that downstream orders at some manufacturers weakened in the latter half of April.