FIS Market Review – The Eye of the storm

eye of the storm

With Category 5 hurricanes rampaging in the Caribbean and Florida, the iron ore market appeared to be calmer with Chinese iron ore futures slid for a fifth consecutive day before stabilizing again.

After all, the market is at its traditional peak season months of September and October. During this period, the market is away from the summer lull and mills will restock before cold winter months where construction activities came to a standstill. In this aspect, the market are generally expected to do well in this period.

Rooms for concern may lie in the upcoming China’s National People Congress commencing at mid-October. As the politburo may introduce some trade or environmental regulations that have some impacts on the steel market.


Chinese iron ore futures plunge to almost one-month low. DCE iron ore futures suffered a fifth days drop to RMB519/mt on Monday, the lowest since 16 Aug, following the declines of other commodities such as rubber and nickel which dropped by around 3% and 4% respectively.

Despite the drop, the rebar futures in Shanghai and iron ore futures in Dalian closed off the lows struck earlier in the session and underwent a recovery, even rallied in the overnight trade. The upward movement continued onto Tuesday trading day as the DCE and SHFE futures firmed steadily from the open.

Eventually, the DCE Jan iron ore futures ranged RMB 521.5 – 538.0 and closed at RMB 536.5 (up vs Friday night’s close at RMB 524.0), whilst the SHFE Jan rebar contract ranged RMB 3,835 – 3,945 and closed at RMB 3,937 (up vs Friday night’s close at RMB 3,854).


Lump, pellets in high demand. The mills located near the vicinity of Beijing were asked to reduce on their sintering units to improve air quality and prevent smog in city. As such, the mills are switching to pellet or lump to comply with emission standard ahead of the upcoming National People’s Congress held in Beijing at 18 Oct 2017.

Spot blast furnace pellet premium prices then went up to a two-year high to record at USD41.50/dmt CFR North China after adjustment to 65% Fe basis on 6 Sep 2017, based on Platts prices assessment. This was the highest premium since Platts began assessing pellet prices on 10 July 2015 and marked an increase of USD5.60/dmt over the week.


Chinese authorities go green. The good demand for lump and pellet are mostly due to the green policies adopted by the Chinese authorities. For instance, China’s Ministry of Environmental Protection (MEP) has stepped up environmental measures to curb smog in winter months. As such, the Chinese authorities have imposed steel output reduction across 28 cities, including steel-making hub, Tangshan during winter periods in a bid to improve air quality.

Moreover, the Chinese policymakers have restricted steel mills to cut their production by 50% across four northern provinces, namely Hebei, Shanxi, Shandong, Henan as well as Beijing and Tianjin, during the peak winter heating months around late November to late February period.

In addition, the Chinese authorities were heard to ask some 3 million companies mainly small manufacturers using coal in their factories for power generation or reheating — to switch to the national grid or LNG. Furthermore, the MEP has closed down around 44,000 coal-fired boilers used for winter heating in a bid to improve air quality.

These imposed output cuts over October and March are likely to support domestic steel prices as blast furnaces utilization will kept at 50% over Nov 15 – March 15 period in Shijiazhuang, Tangshan, and Handan and in Henan’s Anyang.

MEP has also restricted stockpiling of semi-finished or finished steels by steel mills in targeted areas such as Hebei in preventing mills from carrying their sales throughout the winter period.


China’s imports increase in August. Despite the cut in steel production, China imported 88.66 million tonnes of iron ore in August 2017, up 2.79% month-on-month, according to China’s General Administration of Customs. In the first eight months of the year, the country’s iron ore imports were 6.7% higher than for the Jan-Aug period in 2016, down from July’s 7.5% and June’s 9.3%.

The increase in iron ore imports was attributed to Chinese mills snapping up seaborne cargoes before stricter environmental measures came into place on October onwards. Similarly trend was seen in coal imports as well, as steel mills and power plants restocked before the winter.

In the same month, China also imported a total of 25.27 million tonnes of coal in August, up 30% month-on-month but down 5% year-on-year. For Jan-Aug 2017, the country’s coal imports hiked up by 14.2% year-on-year, while coal exports of first eight months were recorded at 5.91 million tonnes of coal, up 4.3% year-on-year.


Over half of Brazilian exports ship to China. Brazil exported a total of 34.12 million tonnes in August, according to the country’s Ministry of Trade and Development. Over half of the exports or 58% were destined to China in August at a total volume of 19.79 million tonnes, down 2.7% year-on-year based on the ministry’s data.

Sales values to China were recorded at USD733.35 million FOB in August 2017, up 3.2% year-on-year, while Malaysia became the second largest recipient of Brazilian iron ore in August at 1.96 million tonne, up 5.7% year-on-year at a value of USD69.83 million FOB, up 8.9% from year-ago month.


Coking coal buyers in no-man lands. Most coking coal buyers have withheld from purchases as prices remained high at USD208.75/mt for Premium Low Vol FOB Australia on Monday, according to Platts assessment. For the Chinese buyers, they are waiting for more clarity in anticipation of further steel production cutback in coming months. In the meantime, the Chinese mills are monitoring closely on the rising domestic coals prices – if their prices were higher than seaborne cargoes, then the mills will switch to procure seaborne cargoes.

Meanwhile, it was heard that the Indian buyers are interested in procurement, given the low coal inventories. However, they are waiting for prices to weaken before any further purchases commitment.