China portside iron ore discount widens sharply in July

The discount of portside iron ore prices to seaborne fines in China expanded sharply in July, largely because of a devaluation in the yuan.

The Argus PCX 62pc portside fines price was at an average discount of $3.69/dry metric tonne (dmt) to the Argus ICX 62pc seaborne fines price last month, the widest such discount since the PCX price was first published in September 2017. The portside fines discount was at $2.43/dmt in June.

The yuan lost 8pc of its value against the dollar in July, making seaborne ore more expensive in yuan terms. Portside traders have not been able to raise prices sufficiently to offset the slide in the yuan, as mill buying remains cautious and largely focused on meeting immediate needs, with no signs of any active restocking.

PB fines cargoes are landing at port with a negative margin of around 25-30 yuan/wet metric tonne ($3.60-4.40/wmt), dampening interest for seaborne spot cargoes, said an east China-based trader. "There are portside traders that have stopped buying seaborne cargoes to land at the port," the trader said. "They instead are buying in portside markets and reselling at the port when the price goes higher. This has helped them reduce risk and losses."

But portside traders are also unwilling to reduce offer prices too much, even if demand slows on any particular day, as this would worsen their losses.

China's portside stocks of imported iron ore fell for a second successive month to hit 153mn t on 31 July, down by 2pc from 156mn t at the end of June. Stock levels may have been hit by slower purchases of iron ore by portside traders. But inventories above 150mn t are still high in historical terms and will pressure seaborne and portside ore prices in the near future.

The portside fines discount may rise in August, with the PCX discount to the ICX at $5.75/dmt in the first two trading days of the month.

The Chinese government has not yet moved decisively to support the value of the yuan, as trade friction between the US and China focuses Beijing's attention on increasing spending and easing monetary policy, both of which could further weaken the currency.

Among the major brands tracked by Argus on the portside market, BRBF fines expanded its premium to the Argus PCX price in yuan terms to 11.92pc in July, up from 8.86pc in June. BRBF fines has rapidly increased its premium to the PCX since April, as higher alumina penalties have created more demand and boosted prices for low-alumina ores, of which BRBF fines is one. Tight availability and continued demand is likely to support BRBF fines prices this month, although some mills are increasing offtake of PB fines because of unconfirmed reports that new arrivals of the popular mainstream brand have lower levels of alumina than before.

Newman fines was at a 3pc premium to the PCX price in July, unchanged from June, while PB fines was at a 0.8pc discount compared with 0.9pc in June. SSF fines' discount to the PCX price was unchanged at 39pc.