Iron ore lump prices fall sharply as demand slows

China's seaborne lump prices have fallen sharply over the past month, as stocks piled up on ports while steel mills cut back their use.

The Argus-assessed 63pc seaborne lump premium fell by 29pc since 4 July — when the premium hit 35¢/dry metric tonne unit (dmtu) to the Argus ICX price for 62pc seaborne fines, the highest level this year — to 25¢/dmtu on 6 August.

Lump prices had been propelled higher in June by environmental restrictions on sintering in north China, especially key steel producing city Tangshan, as well as high prices of 65pc IOCJ fines that had made lump use economically viable.

Demand for lump was reduced along with other ores as blast furnace output for several mills in Tangshan was reduced by 30-50pc from 20 July to control emissions. These restrictions will likely continue until the end of this month. Mills can more easily vary proportion of lump, pellet and non-mainstream ores in the furnace burden than mainstream medium and high-grade fines that often form the core of the furnace burden.

A sharp increase in met coke prices at the start of the month also reduced lump demand, as mills typically switched to using more sintered ores and pellet in the furnace burden to save on coke costs. The Argus assessed 62 CSR met coke price fob north China increased by $15.85/t from the previous week to $337.50/t on 2 August. Tight supplies from Shanxi-based coke plants because of environmental restrictions on coking lifted prices.

Mills are also reluctant to stock up on lump with environmental restrictions in up to 80 cities poised to be rolled out from 1 October, which will sharply reduce demand for iron ore across China. These restrictions will last until 31 March. Typically mills stock up on lump for the winter months as domestic mines suspend operations. But this year the winter restocking will be muted compared with last year when only 28 cities had to restrict steel output.

The lump premium may drop to 15-20¢/dmtu to the 62pc reference index in the short term. Mills in south China have reduced the lump proportion in the furnace burden and lifted proportion of mainstream medium-grade fines such as PB fines, said an east China-based trader.

A Shandong-based mill reported reducing the lump burden to 10pc this week from 15pc a few weeks earlier. A Hebei-based mill reported reducing the lump burden to 12.5pc.

Lump inventories at major ports could be increasing. Lump stocks have possibly increased by 400,000t last week, said a Hong Kong-based trader. Lump stocks are possibly around 20mn t at present compared with 10mn-12mn t at the same time last year, said the manager of a Hebei-based mill. Supplies of PB lump and Newman blend lump increased at Shandong ports last week while PB fines and Newman fines stocks were lower.

Ample inventories at north China ports is a major reason for weak buying interest in lump cargoes. There was a sharp spike in arrivals of lump cargoes around the end of July, which has pushed up lump inventories at Tangshan ports, said the manager of a Tangshan-based mill. Mills are typically reluctant to build up stocks when portside stocks are ample and prices are falling, as they expect to get as much ore they want at a cheaper price at a later date.