China portside iron ore narrows discount in September

Portside stocks of mainstream, medium-grade fines narrowed their discount to seaborne cargoes in September, as mills picked up buying at ports to build stocks for the golden week holidays, lifting portside prices.

The seaborne-equivalent of the Argus PCX price for 62pc portside fines was at an average discount of $3.69/dry metric tonne (dmt) to the Argus ICX 62pc seaborne fines price in September, compared with the widest discount so far in 2018 at $4.02/dmt in August. The PCX-ICX price discount was also at $3.69/dmt in July.

The PCX discount to the ICX dropped sharply on 26 September as mills accelerated iron ore purchases for the 1-5 October golden week holidays. The average PCX-ICX discount on 26-28 September was $2.8/dmt.

The yuan continued to depreciate against the US dollar in September, albeit at a slower pace. The yuan ended September at 6.87 to the dollar after starting the month at 6.82. A weaker yuan tends to widen discount of the seaborne PCX equivalent to the ICX price.

The seaborne-equivalent of the yuan-based PCX price is calculated by assuming a 16pc value-added tax and 8pc moisture.

Portside prices of PB fines gained gradually in September, with prices at ports such as Shandong and Caofeidian rising by over 30 yuan/wet metric tonne ($4.37/wmt) through the month, said a north China-based trader. Traders were making losses of around Yn25-30/wmt on PB fines sales in August, while they were either breaking even or making some profit by the end of September.

The price premium of PB fines at Caofeidian to Qingdao port was at Yn25-30/wmt for most of the month, because of tighter stocks in Tangshan city as well restarts of some blast furnaces in Tangshan in early September that added to demand. The price differential narrowed to Yn22-25/wmt by the end of the month and is expected to stay at over Yn20/wmt in the near term, said a Shandong-based trader.

Demand for BRBF fines remains active as demand for low-alumina ores is still strong. Newman fines prices and demand gained sharply toward the last few days of the month amid tight availability in seaborne and portside markets.

Demand for Mac fines, Jimblebar fines and SSF fines remained muted on the portside markets last month as mills were making strong profits and buying more PB fines, Newman fines, BRBF fines and IOCJ fines to keep productivity at near-peak levels.

Portside BRBF fines narrowed its premium to the yuan-based PCX price in September to 8.06pc from 10.62pc in August. Newman fines narrowed its premium to the PCX to 2pc from 3pc. Qingdao-traded PB fines maintained a stable 0.8pc discount to the PCX in September, while Caofeidian-traded PB fines had a stable premium of 3pc. The SSF fines discount was stable at 38pc.

Portside prices are likely to continue to rise in October, as autumn-winter output restrictions are expected to be more relaxed than last year. This will not curb steel output too much and will support iron ore demand.