Abstract

In September 2020, China’s iron ore prices slumped after hitting the high-level, due largely to weaker-than-forecast fundamentals and steel demand during the month.

In October, China’s portside iron ore stockpiles may inch up amid dropped demand in Chinese steel mills, though the arrivals may decrease.

A combination of rising stockpiles and bearish outlook for the steel market may cause iron ore price to edge down amid rangebound movements in October.

Trading Tips: traders are suggested to focus on iron ore sales. Mills are suggested to keep the in-plant inventory under the normal level a bit.

1. Review on China Iron Ore Market in September 2020

In September 2020, China’s iron ore prices slumped after hitting the high-level, due largely to weaker-than-forecast fundamentals and steel demand during the month.

As of September 28, SteelHome (China) Raw Materials Price Index (SHCNMI) was 141.13 points, up 1.91% month on month; China Iron Ore Price Index (SHCNOI) was 156.03 points (958 yuan/t), up 2.29% from the month prior; China Domestic Iron Ore Price Index was 137.55 points (967 yuan/t), up 2.9% m-o-m; 62% China Imported Iron Ore Price Index was 118.4 dollars/t, up 0.65% on monthly basis. * the m/o/m growth is calculated by the average monthly figures.

On September 28, seaborne price for 61.5%-Fe PB fines was priced at 117 dollars/t, down 7 dollars/t from the one on August 31. Spot price for 61.5%-Fe PB fines was set at 880-890 yuan/t, down 60 yuan/t. In Tangshan, 66%-Fe iron ore concentrate fines dropped by 60 yuan/t to 1000 yuan/t.

On September 28, the most-traded iron ore contract on the Dalian Commodity Exchange closed at 770 yuan per tonne, down by 74 yuan per tonne from the one on August 31.

T1: China Domestic-produced Iron Ore Concentrate Fines Price

T2: Imported Iron Ore Price at Main China Ports

Source: SteelHome Database

*Need More Data? Just Click SteelHome Database (Microsoft's Windows Version)

2. Iron Ore Supply-demand

China imported 100.36 million tonnes of iron ore in August, up 5.8% from the one in the same month last year, data showed by the General Administration of Customs of China (GACC). Daily import decreased by 10.9% month-on-month. Cumulative imports during Jan-Aug 2020 totaled 759.915 million tonnes, up 11 percent year-on-year.

China iron ore output reached 76.999 million tons in August 2020, up 3.527 million tons from the one in the same month a year before, the latest data showed by National Bureau of Statistics of China. Cumulative output in the first eight months of this year was 562.179 million tonnes, up 3.5% from the one in the same period last year. 

Meanwhile, the pig iron output was 78.545 million tonnes in August, up 5% from the same month last year. Cumulative output in the Jan-Aug 2020 was 589.4 million tonnes, up 3.4% from the one in the same period last year. 

3. Iron Ore Inventory

3.1 Port Inventory Surged

According to SteelHome survey, iron ore inventory at 46 main Chinese ports was 120.3 million tons as of September 14, 2020, up 4.5 million tons from the one in late August 2020.

Daily iron ore shipment was 3.0175 million tons in September 2020, down 75,000 tons from a month before. Daily iron ore arrivals at five largest Northern ports (Qingdao, Rizhao, Tianjin, Caofeidian and Jingtang) reached 1.6 million tons in September 2020, up 77,500 tons from August 2020.

3.2 Global Iron Ore Shipments Down, Arrivals to China to Drop

Brazil: August’s export of iron ore was 31.33 million tons, down 7.8% m/o/m, and down 7.4% y/o/y. According to Ministry of Foreign Trade of Brazil (Secex), by September 20, September iron ore export from the country was 21.28 million tons. Then the September volume is estimated to be around 31.92 million tons.

Australia: August’s export of iron ore was 76.77 million tons, up 2.9% m/o/m, and down 1.2% y/o/y. By September 20, the September iron ore export from Australia was 48.08 million tons. Then the monthly volume will be 72.12 million tons.

4. Trending Discussion

4.1 No Fear over Brazil Meeting Iron Ore Export Demand - Secretary

Brazilian officials say there is no room for fear when it comes to the country’s capacity to keep up with Chinese demand for iron ore.

Iron ore prices hit six-and-a-half year highs last week as the Chinese construction and manufacturing sector experiences levels of activity last seen almost a decade ago. In the past three months China’s iron ore imports have climbed 20 per cent year on year, while year-to-date they are up 11 per cent compared to 2019.

“We are seeing a recovery scenario that is already quite favorable for the Brazilian market,” said Brazilian Secretary of Geology, Mining and Mineral Transformation, Alexandre Vidigal,

In Q2 2020, Brazilian mining companies reached a production value of R$39 billion ($7.5 billion), an increase of 9% over Q1.

Brazil’s iron ore exports – which represent 59% of the country’s mineral production – totaled $5 billion in Q2, 6% higher than Q1 2020, but 5% lower than in Q2 2019. The country exported 76 million tonnes, 8% above the total registered in Q1 2020, but 3% lower than Q2 2019.

Brazilian mining giant Vale has been returning to its pre-pandemic level operations as exports have hit 33.4 million tonnes in July, up nearly 60% from May.

“These are facts that signal a tendency for the sector to recover, reinforcing our understanding that the mineral industry may play a prominent role in the country’s economic recovery,” said Vidigal.

Industry group IBRAM projects that the country will export 310 million tonnes in 2020, lower than the 340 million tonnes exported in 2019.

“In 2020, besides the pandemic, intense rains at the beginning of the year and operational adjustments of mining companies to meet resolutions involving dams hit the production,” said Cinthia de Paiva Rodrigues, research and development manager at IBRAM.

4.2 Iron Ore Price at 100$/ton in 4Q2020 and Dropping to $81 in 2021: Morgan Stanley

Analysts at Morgan Stanley offered a bearish outlook on iron-ore prices over the next 12 months, in its latest client note.

Key quotes

1. “Shipments from Vale increasing and demand from China (steel output) easing.”

2. “China demand eases during the country's winter with slowing construction.”

3. “Some support from China port inventory replenishment.”

4. “Seen iron ore prices at 100$/ton in Q4 and dropping to $81 in 2021.”.

4.3 Vale Informs on Viga Operations

Vale S.A. (Vale) informs that it suspended, in the night of September 24th, the disposal of tailings and the execution of works at the B7 dam, located in the municipality of Jeceaba, MG, in compliance with the decision by the judge of the Court of Entre Rios de Minas district regarding the Public Civil Action filed by the municipality of Jeceaba. As a result of this decision, the operations of the Viga concentration plant, located in the municipality of Congonhas, MG, were also suspended, while the activities at the Viga mine remain unchanged.

The estimated impact of the temporary stoppage of Viga operations is of approximately 11 thousand tons of iron ore fines per day. Vale reinforces that the Viga operational unit fulfills the necessary requirements for the issuance of the B7 dam operating permit and that, for this reason, it will contest the court decision.

5. Outlook on Iron Ore Market

5.1 Supply

Iron ore shipments from Australia and Brazil dropped in September, with a large amount of decrease from Australia and Brazil reflecting on October’s arrivals. SteelHome considers that the iron ore arrivals at China’s ports may edge down in October.

Meanwhile, the supply of China domestic-produced iron ore concentrate fines would remain broadly stable as the further rise in the production would be limited.

5.2 Demand

China blast furnace operating rate is likely to fall back from the lofty heights in October as the local government may impose stricter production curbs to control air quality. Therefore, the demand for iron ore products may reduce by that time.

5.3 Inventory

China’s portside iron ore stockpiles may further increase in October amid dropped demand in Chinese steel mills, though the arrivals may decrease.  

5.4 Price Forecasting

A combination of rising stockpiles and bearish outlook for the steel market may cause iron ore price to edge down amid rangebound movements in October.

6. Trading Tips

Steelmakers are suggested to keep the in-plant inventory under the normal levels a bit.

Traders are suggested to focus on iron ore sales.