China iron ore: Seaborne flips to a premium to portside

March-loading deals sent seaborne iron ore prices higher, flipping them to a premium to portside prices that face weaker immediate demand.

Logistical and demand challenges from the coronavirus outbreak have prompted steel mills to reduce output and increase maintenance for February. This has put more pressure on portside markets, while seaborne got a boost from more forward outlooks. March demand for iron ore could increase if the outbreak eases and construction projects are allowed to restart after winter.

"Iron ore demand will increase after two weeks in our opinion, so buying forward cargoes is a good choice at current price levels," a Shanghai-based trader said.

The Argus ICX 62pc seaborne fines index rose by $2.65/dry metric tonne (dmt) to $82.50/dmt.

March deliveries of PB fines 62pc basis traded at $82.60/dmt and BRBF 62pc basis traded at $85.10/dmt on the Globalore platform. IOCJ 65pc basis traded at $99.60/dmt on the Corex platform.

A combination cargo of PB fines and PB lump for late February loading traded off screen at $1.30/dmt above March index and a 30¢/dmt premium to February index, with a monthly lump premium. The platform deals boosted sentiment in off-screen trade, a north China trader said.

Paper trade saw 62pc iron ore forward prices rise by $2.40/t to $80.90/t for February and by $2.15/dmt to $79.95/dmt for March.

Not everyone is convinced the rebound will be sustained. Buying interest returned today after prices fell to relatively lower levels, "However we still think the rebound will be very short and more declines will continue in February," a Beijing trader said.

The Argus PCX 62pc portside index fell by 21 yuan/wet metric tonne (wmt) to Yn623/wmt free-on-truck Qingdao. The PCX seaborne equivalent fell by $3.90/dmt to $81.25/dmt cfr Qingdao.

Chinese May iron ore futures fell by 2.6pc to Yn591/t.

Portside trade volumes increased slightly from yesterday. PB fines were sold at Yn640/wmt in Tianjin, Yn635/wmt in Tangshan and Yn620/wmt in Shandong port, extending the downtrend. PB lump traded at Yn825/wmt in Tianjin.

ICX rationale

Two ICX-eligible deals traded today. March deliveries of PBF62 traded at $82.60/dmt and BRBF62 traded at $85.10/dmt on the Globalore platform, normalising to $82.56/dmt and $82.62/dmt respectively. Both were given a 100pc volume weighting. There were 12 indicative prices, bilateral bids and offers with an average normalised price of $81.87/dmt, with each given a 5pc volume weighting. Normalised prices above $82.79/dmt and below $81.16/dmt were statistically excluded.

For the lump premium to the ICX, NBL traded at 26.7¢/dmt unit (dmtu) fob basis on the Corex platform, normalising to 26.9¢/dmtu on a cfr basis. Seven bilateral bids, offers and indicative prices averaged at a normalised value of 27¢/dmt unit, each given a 5pc weighting.