Portside iron ore discount to seaborne narrows

Prices of imported mainstream fines in Chinese ports narrowed their differential to seaborne prices last month, on the back of higher gains in portside markets.

The seaborne equivalent of Argus PCX 62pc portside fines price was at a discount of $2.57/dry metric tonne (dmt) to the Argus ICX 62pc seaborne fines in April compared with a $2.63/dmt discount in March. The April discount for PCX was still higher than the January-March average discount of $2.36/dmt.

The Argus ICX price was nearly flat in the month of April, while the seaborne equivalent of Argus PCX rose by 1.7pc during 1-30 April.

China's portside market is yuan denominated. Argus converts the yuan-denominated PCX price to a seaborne, US dollar equivalent by assuming a 17pc value-added tax (VAT) and 8pc moisture for fines cargoes.

China has reduced the VAT for commodities to 16pc from 17pc from 1 May, which is expected to lower sales prices of yuan-denominated mainstream fines by an average of Yn3-5/wet metric tonne (50-80¢/wmt).

The Argus PCX was at a discount to ICX every trading day in April but the differential moved in a narrower range of $1.50-4.05/dmt compared with a more volatile March.

Portside price are much cheaper than seaborne prices, which is making many trading firms buy iron ore in portside markets and resell at a higher prices few days later. Trading firms are avoiding booking seaborne cargoes as they have to book losses for selling such cargoes in the portside market, said an east China-based trader.

Among the major portside fines prices tracked by Argus on a daily basis, BRBF fines has increased its premium to the Argus PCX since January. The average premium of yuan-denominated BRBF fines to the PCX was 3.34pc in April compared with 1.1pc in March, 0.34pc in February and a discount of 1.28pc in January. Brazilian mining firm Vale has reduced third-party blending of its 63pc BRBF fines in China, reducing spot supplies and improving quality, both of which have supported its pricing.

Portside SSF fines reduced its discount to the PCX to 37pc in April from 39pc in March and 40pc in February. Erosion in profit margins of Chinese mills and the shutdown of iron ore mining in India's coastal state of Goa have boosted demand for Fortescue's SSF fines.

PB fines traded at a discount of 0.9pc to the PCX in April compared with 0.8pc in March, while Newman fines' premium to PCX contracted to 5pc in April from 6pc in March.