Steel margin expansions send seaborne iron ore prices to all-time high

Singapore — The Platts 62% Fe iron ore fines index hit an all-time high at $193.85/dry mt CFR North China, 85 cents higher than the previous record set in February 2011 of $193/dmt, in a continuation of the price strength exhibited in Q1 2021 with high steel output and rising margins in China lifting iron ore demand.

Global crude steel production totaled 486.9 million mt in the first three months of 2021, a rise of 13% from the same period in 2020, according to World Steel. Of this, China produced 271 million of crude steel in the first quarter, up 15.6% year on year.

Despite the strict implementation of regional production controls in Northern China since March this year, China's steel production continued to firm on the back of flourishing downstream demand.

"The soaring crude steel production in March across the world has turned people's expectation into fact. Q1's production data has proved that the demand for both iron ore and steel is strong and steel mills would maximize the production rate where permitted now. End-users who were reluctant to build positions in March, have ramped up the procurement pace in April," said a Beijing-based Chinese trader.

HRC, Rebar margins at record high

April to May is traditionally a peak season for steel demand in China given suitable weather conditions for construction activities. This has coincided with a sharp rise in steel prices in Q1 in Europe and the US, with COVID-19 vaccination programs helping economic recovery.

According to S&P Global Platts Analytics, the Platts MVS China Domestic Steel Mill HRC Margin reached a record high of $177.88/mt April 26, while the Rebar Margin closed at a two-year high of $138.75/mt.

"Both flat and long steel margins are looking to sustain at levels around Yuan 1,000/mt thanks to flourishing export markets. Domestic downstream sectors were also matching up to the price upticks," said a mill source based in Northern China. "This is supporting mills' acceptance level for high raw material costs."

Meanwhile in southern China, a procurement source based inland saw comparatively lower steel margins but noted a general trend among local mills to maximize pig iron production and procure better quality ores with higher ferrous content.

The largely improved liquidity on port transactions in the week also echoed the views that the recent iron ore price uptick was driven by restocking demand. Platts iron ore 62%-Fe iron ore port stock index, or IOPEX East China, was assessed at Yuan 1,333/wmt FOT April 27, or at $193.89/dmt on an import parity basis.

Iron ore supply has been less concerning in Q1 2021 compared with the same period over 2019 and 2020, with Brazilian miner Vale producing 68 million mt in Q1, up 14.2% from Q1 2020, according to its latest quarterly production report.

Meanwhile in Australia, the above average wet weather hampered production levels in Q1 2021. Among the major producers, BHP produced 59.8 million mt and Rio Tinto produced 76.4 million mt iron ore in Q1, flat and down 2% respectively from the same period last year.

Corrects price on first paragraph