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Lower margins, greater arrivals to erode momentum in iron ore prices in Jun
Jun 6,2019 08:19CST
SMM Insight
Margin on rebar declined 51.2% to 434 yuan/mt in May

SHANGHAI, Jun 5 (SMM) –Upward momentum in seaborne iron ore prices across Chinese markets is likely to wane in June, as narrower profit margins deter mills from stepping up production and as Australian miners are expected to ramp up shipments.

Higher iron ore prices have undercut margins across steelmakers. MMi62% showed that iron ore costs as of the end of May gained 12.1% month on month, and 62.7% year on year.

Margin that mills could see on rebar declined 51.2% from the end of April to 434 yuan/mt, and that on hot-rolled coil shed 58.3% to 290 yuan/mt, according to SMM calculation based on iron ore prices of $105/mt.

Firmer iron ore prices drove mills to deplete inventories, reflected by slower daily iron ore deliveries leaving ports in late May and inventoriessmaller than 10 days at plants.

SMM data showed that seaborne iron ore stocks across 35 Chinese ports stood at 114.85 million mt as of May 31, down 10.64 million mt from a month ago and 31.66 million mt from a year ago.

During the same period, daily iron ore deliveries leaving those ports inched up 4,000 mt to 2.65 million mt.

Greater arrivals are likely to slow the drop in port stocks. In the week ended June 1, some 97 vessels carrying 14.25 million mt of iron ore arrived at major Chinese ports, up 3.15 million mt from the previous week, SMM forecasted on Tuesday June 4. This marked a rebound in seaborne iron ore arrivals after three consecutive weeks of declines.

For the same week, iron ore deliveries departing Australian ports expanded 1.43 million mt from the prior week, to stand at 15.69 million mt, and shipments from Brazilian ports was expected to increase by 960,000 mt week on week, to 6.98 million mt.

Historical data showed that Australian miners often delivered a larger amount of iron ore in June to beef up mid-year fiscal reports.

This, together with currently robust prices, is likely to grow iron ore arrivals at Chinese ports this month.

Headwinds against steel prices from greater supplies and weaker demand are also likely to cap gains in iron ore prices.

Operating rates across blast furnaces are expected to further climb in June, as the top steelmaking hub, Tangshan, appears to loosen output curbs. This, however, is unlikely to significantly boost demand for iron ore as maintenance will limit upside room in operating rates.

A pessimistic outlook for steel demand also cast a pall over prices. SMM purchasing managers’ index (PMI) for the steel downstream sectors showed signs of weakening in manufacturing, as the low season approached

The hot weather and heavy rainfall are likely to curtail the strong performance of the construction sector in June.

Iron ore

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