China portside iron ore keeps premium to seaborne

Portside prices of mainstream fines in China retained their premium to seaborne prices in December as mills turned cautious, preferring to use yuan-based cash portside markets to meet immediate needs and buy lower-cost ores to narrow the spreads between brands.

The Argus PCX price for 62pc portside fines was at an average premium of 52¢/dry metric tonne (dmt) to the Argus ICX 62pc seaborne fines index average of $69.46/dmt in December, up from a 42¢/dmt premium in November. On an outright basis, both indexes fell from November as a sharp erosion in steel profit margins since mid-November moderated demand for premium medium-grade fines.

Among the portside brand prices assessed by Argus at Qingdao port, the premium for BRBF fines to the Argus PCX price contracted to 1.3pc above the PCX index last month, down from a 2.35pc premium in November. The BRBF fines premium to the PCX peaked in July at 11.92pc as demand for low-alumina fines spiked in China, but its premium steadily declined in the second half of 2018.

The premium for Newman fines to the PCX index rose to 1.81pc from 1.58pc in November, while Qingdao-traded PB fines narrowed its discount to 0.73pc from 0.84pc. Caofeidian-traded PB fines traded flat to the PCX price in November and December.

SSF fines narrowed its discount to the PCX price to 36pc in December from 38pc in November. Demand for low-grade ores has increased over the past month as mills seek to reduce costs by increasing the proportion of lower-cost ore in the burden.

The PCX price had traded at a discount to the ICX for most of 2018, turning to a premium in November. The seaborne-equivalent of the yuan-denominated PCX price is calculated by assuming a 16pc value-added tax and 8pc moisture.

But the ICX price has been at a premium to the PCX price on every trading day since 21 December as mills increase purchases of January-loading, February-delivered Australian mainstream, medium-grade fines to stock up for the lunar new year holiday in the second week of February and the resumption of full-scale construction work in north China in the spring.

Mills are unlikely to aggressively restock for February-March cargoes, with profit margins quite depleted and concerns about weak steel demand in the first quarter of 2019. Mills could reduce buying of both portside and seaborne ores in the near term if China tightens environmental restrictions on sintering and steelmaking because of worsening pollution. China's largest steel-producing city of Tangshan may extend strict sintering curbs, imposed until 31 December, which could reduce iron ore demand.

source: Argus Media