FIS Daily Ferrous Update: Saint Monday

DCE had a pullback from the highs seen in last week to settle around RMB 768.50 a tonne on Monday, down RMB 19.50 or 2.47% on-day.

Rebar futures had also dropped across the board on Monday down to RMB 3,704 a tonne, down RMB 81 or 2.14% on-day, while Tangshan billet steel went down by RMB 20 to RMB 3,410 per tonne on Monday after losing RMB 80 over the weekend.

One will have thought that it was probably due to the ‘Monday syndrome’ or Saint Monday, where trade participants making its way to the market wearily after much fun in the weekend. However, there are some market fundamentals that are at play as well.

 

More Brazilian shipments

The pullback may be due to the anticipation of more Brazilian shipments to China after Vale’s restart of its Brucutu mine to bring back around 20 million tonnes of production per year.

However, Vale still need the court approval for full restart of operation in Brucutu mine, while another 30 million tonnes of capacity is on the table for restart on the second half of the year after obtaining licenses for its Alegria, Vargem Grande and Timbopeba mines.

 

Port inventory down to a 2-1/2 years’ low

There are reasons for more iron ore upside, given the low port inventory in China, which dropped to a two and half year low of 118.7 million tonnes of iron ores, down 2.9 million mt on-week, according to SteelHome consultancy.

However, the steel margins continued to shrink which left some mills to only purchase by need basis, despite good support on demand.

Going forward, the Chinese mills are expected to keep producing amid lower margins, given the profitability and demand from rising construction projects.