Capesize

17950

Sep-17
0.00 0.00%

Panamax

11175

Sep-17
225.00 2.05%

Iron Ore

76.5

Sep-17
0.85 1.12%

Sing 380

278.25

Oct-17

Coking Coal

208

Sep-17
0.00 0.00%

Nola Urea

212.5

Sep-17
0.00 0.00%

Market hibernates ahead of Lunar New Year holidays


It is the time of the year again, where Chinese trade participants decided to go for break after a premediated iron ore restocking process ahead of the festive season. Much like the Christmas and New Year holiday season that saw the English-speaking world trade their working suites for party dresses.

For restocking, the Chinese traders had done their best in importing various materials in preparation for the post-Lunar New Year market, where the Chinese authority is expected to loosen the restriction output of mills after 15 March 2018.

However, that is only one side of the story as the restocking of coking coals are alive and well, especially among the Indian traders that anticipated rising steel output in near term.

 

China builds up stocks for post-Lunar New Year productivity drive

China has imported 100 million mt of iron ore in January 2018, up 19.3% month-on-month and up 9.1% at year-on-year basis. The January’s import volume was just shy of the record-high volume of 102.8 million tonnes arrival in September 2017.

The huge influx of imports were due to the preparation for the normalizing of demand in mid-March after the winter output restriction imposed by the Chinese authority. In Q4 2017, China imported around 258 million mt where demand for iron ores were curtailed by the restriction in steel output in a bid to improve air quality in cities.

The rising import indicated the strong Chinese restocking ahead of the Lunar New Year holiday and some mills are planning to restarts after the winter period. Most mills are expected to restart after mid-March due to the steel production restriction imposed by the Chinese authority since November 2017.

Despite the strong imports volume, China’s steel exports plunged by 18% month-on-month to 4.65 million tonnes in January 2018. Overall, the full-year steel exports for last year, 2017 fell 30.5% to 75.4 million tonnes, while full-year imports remained relatively unchanged at 13.3 million tonnes.

  

China to complete steel capacity reduction two years ahead of target

The Chinese authority planned to meet their steel capacity reduction in 2018, two years ahead from their original targets of 2020. Initially, the plan called for reducing 150 million tonnes of steel production capacity in China by 2020. So far, the China has cut around 115 million tonnes of steel capacity between the 2016-2017 periods, and has performed checks at the first half of 2018 in inspecting the closure of induction furnaces.

During the push for capacity reduction, the Chinese authority has accelerated the closure of many lower-end induction furnaces. Going forward, the authority will champion more mills in having electric furnaces to process scrap materials and relocated to other regions away from Northern Beijing, Tianjin and Hebei province.

 

European steel demand expected to shine in 2018

European steel demand might rise in 2018, according to European steel association (Eurofer). The association expects steel consumption to rise by 1.9% year-on-year in 2018 among the 28 nations of the European Union (EU), similar to the rate seen in 2017.

High construction activities and manufacturing processes were attributed to the consumption growth in 2018. However, the Eurofer sees consumption growth dipping to 1.4% in 2019 as infrastructure activities cooled.

In 2017, Eurofer noted a drop in steel imports into EU due to policies to block dumping and unfair subsides. Thus, the EU saw a 41% drop of Chinese steel imports to EU, then 32% drop for Russian steel imports and finally a 31% dip from Ukraine-origin steel into the EU. On the contrary, EU’s steel import from India went up by almost 100%, followed by Indonesia for more than 100% and Turkish steel imports also saw a rise of 64% last year.

 

FMG gives further record-low discount in Feb

Australia’s Fortescue Metals Group (FMG) has set a new record in discounts over its February delivery iron ore products. As such, the discount for FMG’s high-grade iron ore in China for February was set at 33%, as compared to the 29% discount in January 2018 and December 2017, then 25.5% in November 2017.

Then the discount on its lowest grade 56.7% remained unchanged month-on-month at 40% for February 2018. The miner has given various discounts to gain bigger market shares in China where the environmental protection regulation urged the mills to adopt high quality ore instead to reduce pollutions.

 

India overtakes U.S. in steel-making in 2017

India has overtook U.S. in becoming the world’s third-largest steel producer in 2017, according to the World Steel Association (WSA). India produced a total of 101.4 million tonnes of crude steel in 2017, up 6.2% year-on-year.

Overall, the world’s crude steel output came at 1,691.2 million tonnes in 2017, up 5.3% year-on-year with China taking top spot in producing 831.7 million tonnes, up 5.7% year-on-year, while Japan came second at 104.7 million tonnes, slightly down by 0.1% at year-on-year basis.

Indian steel production recovery was attributed to the series of the anti-dumping duties and countervailing duties adopted by the Indian government which enforced a regulation in preferring usage for locally produced iron and steel products by May 2017.

Despite the regulation, India’s domestic consumption of steel per capita is still low at around 65 kg, compared to global average of 235 kg. Going forward, the country aims to raise in per capita steel consumption to 160 kg by 2030.

 

Mining licences revokes by Indian court

India’s court has revoked all mining licences in rich iron ore producing region of Goa on ground of environmental protection. Thus, all mining operations in Goa will cease after Mar 15, 2018 before the government issues new licences.

So far, a total of 88 iron ore mining leases belonging to 20 companies were cancelled in Goa, which exported around 20- 50 million tonnes of iron ore per year. Most of these exports were shipped to China, as most Indian steel mills lack of the technology to process the domestic materials. On the whole, India produces around 192 million tonnes of iron ore during the last fiscal year.

 

Buyers seek opportunities in restocking of coking coal

Indian coking coal buyers continued to seek for restocking opportunities in the FOB market. It was heard that around two Indian trade participants were looking for cargoes in the market on Friday.

Other than Indian buyers, the Chinese buyers did some restocking ahead of the Lunar New Year period in mid-February. It was heard that five trades were changed hands on Tuesday alone as buyers scrambled for cargoes prior to Lunar New Year holidays.

The Chinese buyers’ preference for seaborne cargoes was due to their inaccessibility in obtaining domestic coals. According to trade sources, Chinese end-users found it easier to obtain seaborne cargoes rather than domestic coals as heavy snows made transportation difficult. In the meantime, the priority was given to the transportation of thermal coals over coking coal during the winter period in China.

For the Japanese traders, many end-users remained fully stocked up at the moment. Going forward, some of the Japanese traders expected more buyers to seek for “insurance cargoes” as suitable alternate sources to Australian coking coals which supply remained tight. Moreover, the Japanese trade participants are closely monitored the cyclones occurring at Queensland which might impact supply.

 

Verdict

According to FIS analyst, Pei Hao, the iron ore DCE market remained very flat prior to the Lunar New Year holiday. He expected first support at RMB 503.5, while first resistance at RMB 536.

12Feb2018