Portside iron ore widens discount to seaborne fines

The portside price discount to seaborne fines widened in June after narrowing for two successive months, largely because of the devaluation of the yuan.

The Argus PCX price for 62pc portside fines was at an average discount of $2.43/dry metric tonne (dmt) in June on the Argus ICX price for 62pc seaborne fines. The discount widened from $1.77/dmt in May. The PCX-ICX discount was at $2.63/dmt in March, the widest this year, but narrowed to $2.57/dmt in April. The PCX-ICX discount was at $3.05/dmt yesterday.

Imported fines are sold in China's portside markets on a yuan basis. The seaborne equivalent of the Argus PCX price is calculated by assuming a 16pc value-added tax and 8pc moisture.

The devaluation of the yuan against the US dollar accelerated in June as concerns mounted on the impact of US tariffs on billions of dollars worth of Chinese products starting 6 July. Apart from tariff issues, weak economic data such as a slide in the manufacturing purchasing managers index in June may point to slowing growth momentum in China, which has led to firm demand for buying dollars and pressured yuan, said equities firm Oanda analyst Stephen Innes. But China's central bank may act to shore up the yuan if the currency crosses a certain line, such as 6.70 to a dollar, he added. The yuan was trading at 6.70 to the dollar at 12.50pm Singapore time (04:50 GMT) today.

The depreciation in yuan has made it less profitable for trading firms to buy seaborne cargoes and sell them in portside markets on a yuan basis. Trading firms have booked fewer cargoes as a result, leading to a glut in seaborne supplies and pressuring seaborne prices. Weakening steel demand as rainfall set in in south China over the past few days also curbed demand for portside fines. Steel mills are also buying more lump cargoes as sintering restrictions continue in north China cities such as Tangshan.

Among medium-grade portside brands tracked by Argus, BRBF fines continued to widen its premium to the Argus PCX price for the sixth successive month at 11.16pc in June compared with 8.86pc in May. Demand for low-alumina ores is expected to remain robust as supplies of low-alumina domestic concentrate are poised to remain tight in the short term because of environmental restrictions on mining.

The Newman fines premium to the Argus PCX rose to 4pc in June from 3pc in May. The premium was at 4pc in April. PB fines discount to the Argus ICX was unchanged from May at 0.9pc in June, while the SSF fines discount widened to 39pc from 38pc in May.