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%

Iron Ore: Supply Galore in 2018


The New Year seems to offer the market plentiful of supply after witnessing high prices volatility last year. Major miners tend to ship more cargoes last year as the surplus exports did not really hurt them as long the shipments are profitable.

However without any big demand pledges for the market in 2018, surplus shipments might haunt suppliers this year. Apart for Lunar New Year restocking, there are few sources of demand that will draw down on the vast build-up of supply inventory.

A surplus of 40 million tonnes of iron ore added in 2018

For 2018, the market expects the world’s four largest miners, Vale, BHP, Rio and FMG will ship an additional 40 million tonnes of iron ore exports to tally of approximately of 1.6 billion tonnes in the seaborne market.

The rising export came as the miners have largely increased their output last year, especially toward the closing months to 2017. For instance, BHP saw a 3% growth year-on-year in its iron ore output of 72 million tonnes for the three months ended on 31 Dec 2017. Despite the growth, BHP will maintain its internal production guidance of 275-280 million tonnes of iron ore in the fiscal year to 30 June 2018.

For coking coal, the BHP will lower their fiscal full-year production guidance to 41-43 million tonnes, from estimated range of 44 -46 million tonnes due to lower output volumes from its Broadmeadow and Blackwater sites.

Another “Big four” miner, Rio Tinto had shipped a total of 330.1 million tonnes of iron ore in 2017, in line with its annual guidance of 330-340 million tonnes. Shipments in 2017 went up by 1% as compared to 2016’s volume of 327.6 million tonnes. During the last quarter of 2017, Rio shipped a total of 90 million tonnes, up 3% thanks to efficient uses of railways networks.

Going forward, the Rio is expected to export around 330-340 million tonnes for 2018, similar to the volume shipped last year or rise by 3% at most this year. So far, the Rio has been cautious in expanding its mining complexes, choosing to “focus on value over volume”. As such, the Rio has closed its Hope Downs 4 mine in Australia for 2 weeks in December 2017, after the miner hits its annual shipment guidance.

 Record-high inventory recorded in Chinese ports

China’s port inventory has hit a new record high with stocks over 150 million tonnes, or almost a 14-years high seen among the Chinese ports. According to Custeel’s survey of 42 ports in China, the total port inventory stood at 152.88 million tonnes on Friday, 19 Jan 2018, up 2.11 million tonnes week-on-week.

Despite the high port inventory, many of the dockside stocks belonged to the low grades with little Carajas and Pilbara Blend fines lots available. According to a trade source, the trading activities were thin among Chinese ports as many end-users had sufficient inventory and were in no rush to procure. However, there are some end-users seeking for cheaper fines alternatives of low grade for blending purposes and the market expects the grade differentials to narrow in the near term.

Iran becomes the sixth largest iron ore supplier of China in 2017

Iran shipped 22 million tonnes of iron ore to China, becoming the sixth largest supplier of the country in 2017. It was estimated that around 91% of the Iranian iron ore exports went to China alone. On the other hand, China imported a total of 1.07 billion tonnes of iron ore in 2017, up 8% year-on-year according to SteelMint’s report.

Indian iron ore exports to China had also seen a rise, up 14% year-on-year, accounting nearly 82% or 16.23 million tonnes in 2017. Going forward, India plans to increase its market share in China with the scrapping of export tariffs on above 58% ferrous content iron ore cargoes.

Iran to boost crude steel capacity to 55 million tons by 2025

Iran plans to become the world’s sixth largest steelmaker through boosting its crude steel capacity to 55 million tons by 2025.The Iranian Steel Producers Association (ISPA) recorded a total export of 4.61 million tons of semi-finished steel during the first nine months of Iranian current fiscal year (from 21 March 2017 – 21 Dec 2017), up 80% year-on-year. Going forward, the association expects steel exports to reach 8 million tons in the current fiscal year (from 21 March 2017 – 20 March 2018).

During the first nine months of the current fiscal year (Mar 21-Dec 21, 2017), Iran had also consumed 15.21 million tonnes of finished steel during the first nine months of the current fiscal year (Mar 21-Dec 21, 2017), up 7% year-on-year based on data from ISPA.

As such, the country’s consumption of hot-rolled coil steel went up by 7% year-on-year to 6 million tonnes, while cold-roll coil rose 32% year-on-year to 1.38 million tonne during the period.  However, the rebar consumption plunged by 13% year-on-year to 4.26 million tonnes, while the semi-finished steel usage remained unchanged compared with last year’s corresponding period at 11.48 million tons.

India to cut tariffs for coking coal imports

India’s steel ministry seeks import waiver for coking coal to boost its steel industry. The steel ministry had since proposed to India’s finance ministry to bring the import duty on coking coal to zero from the current 2.5% tariff, ahead of the country’s upcoming Budget for 2018-2019 on Feb 1, 2018. Moreover, the steel ministry proposed to cut the import duty on steel scrap to zero in the memorandum.

The reduced tariffs on the imported materials are expected to benefit the country’s steel production which depends heavily on coking coals import as its domestic produced coals have high ash contents and are less efficient in steel making.

Australia’s DBCT back on track for coal exports

Coal exports from Australia’s Dalrymple Bay Coal Terminal (DBCT) has recovered in December 2017, thanks to surge of shipments to India. During December, the terminal exported a total of 5.79 million mt, down 12% year-on-year, but up 13% from 5.12 million mt recorded in November 2017.

Among the exports, DBCT had shipped a total of 1.34 million mt to India during December 2017, a 15 month high, up 161% year-on-year and a rise of 28% month-on-month from 1.05 million mt seen in November 2017.

The rising Indian shipment was attributed to the country’s increasing appetite for seaborne coking coal due to its target to ramp up its steel production capacity toward 300 million mt per year by 2025. As such, India’s metallurgical coal imports are expected to rise around 50 million mt in 2018, higher than 49 million recorded in 2017. Going forward, the country’s metallurgical coal imports are forecasted to hit 53 million mt in 2019.

Verdict

According to FIS analyst, Pei Hao, the iron ore market might go from short-term neutral to mid-term bullish. So far, the iron ore had been trading slightly down due to the sharp fall of coking prices. He predicted that the steel restocking cycle is averagely around 10 weeks, which is expected to extend to 15 weeks since the Chinese authority’s imposed winter cut had reduced some steel capacity among the mills. Thus, he expected the first support on 525.5, while first resistance at 555 level.

22jan2018