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China's steel mills cut back on iron ore stocks

09 May 2018 06:22 (+01:00 GMT)
China's steel mills cut back on iron ore stocks

Singapore, 9 May (Argus) — Chinese steel mills are cutting back on iron ore inventories from peak levels in February, with ample availability of high-grade seaborne and portside grades.

Mills had built up record high stocks of 40-60 days of iron ore use in January and February, anticipating a surge in iron ore demand in March and April on the lifting of winter steel output curbs in 26 cities and seasonal spike in construction steel demand. But the surge in iron ore demand did not materialise as construction demand for steel picked up at a much slower pace than expected.

Some mills in coastal areas of north China are currently operating with iron ore stocks of 7-15 days, as there are sufficient supplies of mainstream ores. Multiple trades for PB fines have emerged daily via tenders and on online platforms daily over the past few weeks. Bids for floating cargoes of Newman fines, which had traded at a premium to PB fines earlier this year, are now at par with PB fines.

Portside stocks of iron ore are around 160mn dry metric tonnes (dmt), just off record highs of 163mn dmt on 31 March. While a large proportion of stocks are low-grade ores, there is ample availability of BRBF fines and PB fines in the portside markets, with trades emerging daily.

A Shandong-based mill reported inventories of 200,000t of iron ore, around 20 days of consumption, down from 30 days earlier in the year.

Another mill in Shandong province, the third-largest steel producing province in China, reported stocks at 10 days. Most steel mills in Shandong are not planning a significant build in stocks despite expectations of iron ore fines sintering restrictions possibly being imposed in the province over 30 May-15 June during the Shanghai Co-operation Organisation heads of states meeting in Qingdao, Shandong in the first half of June.

But some Shandong-based mills are seeking to buy more imported pellet feed concentrate to increase the proportion of direct-charge material in the furnace burden during the restriction period.

Frequent restrictions on iron ore sintering in Hebei province to reduce emissions have prompted some mills to cut down on fines stocks. A Tangshan-based mill cut its inventories to 25 days from 45 days of stocks in March. The mill will continue to reduce its inventories this month as they are able to get sufficient PB fines, Newman fines and domestic pellet feed concentrate in domestic markets. Another Hebei-based mill reported stocks at around 15 days of consumption.

Average stocks of Hebei-based small- and medium-size mills are around 15-20 days, while it is around a week for Shandong-based mills, said a Hong Kong-based trader.

Seaborne iron ore prices have been stable for more than a month, with the Argus ICX 62pc seaborne fines moving in a $63-69/dmt range since late March. Stable prices will encourage steel mills to continue with their conservative stocking approach as it does not carry a significant price risk.

But several mills along the Yangtze river in Jiangsu, the country's second-largest steel producing province, are maintaining stocks of more than 25 days, as poor visibility on the Yangtze river because of air pollution is causing regular bottlenecks at the river mouth for vessels bringing in iron ore from seaports to river ports. Unloading of vessels at Yangtze river ports has been running at a delay of 10-15 days over the past few months, forcing mills to maintain large stocks to run daily operations without any problems.