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Iron ore price surge end-2020 fails to deter build in port stocks

  • Author
  • Analyst Crystal Hao    Paul Bartholomew
  • Editor
  • Norazlina Jumaat
  • Commodity
  • Metals

Melbourne — Iron ore prices rose by more than 70% in 2020, but this failed to have put a dent on iron ore stocks held at Chinese ports, which ended the year at almost the same level it had started the year. This indicated that the correlation between port stocks and seaborne iron ore prices was not particularly strong and other factors, such as steel mill margins and sentiment played a far bigger role.

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According to CEIC Data, China's port inventories stood at 124.5 million mt on Dec. 27, 2020 compared with 124.6 million mt on Jan. 5, 2020. S&P Global Platts 62% iron ore fines benchmark was assessed at an average of $161.21/mt CFR China during the week of Dec. 27, 2020, down from the year's peak of $168.36/mt the week before, and up 71.4% from the average of $94.06/mt during the week of Jan. 5, 2020.

Port stock volumes were steady in the first quarter of 2020 despite supply issues in Australia and Brazil. They began increasing in quarters two and three as exports recovered, before rising strongly in the final quarter of the year. Iron ore prices started increasing in August, but the big rally did not occur until December, buoyed mainly by strong financial markets.

Quickly rising seaborne iron ore prices, and weak margins in the case of domestic rebar, spurred mills and traders to buy more iron ore from port stocks, evidenced by falling port stock data through most of December.

Domestic rebar margins had almost vanished by the end of December, after fluctuating wildly during the month to average just over $32/mt, Platts data showed. Domestic hot-rolled coil margins averaged $85.31/mt in December, helped by the strong recovery in manufacturing.

China's monthly iron ore imports were lower in Q1 2020 compared with the previous year, but then jumped in the second half, with the country importing more than 100 million mt/month over June-October, customs data showed.

Brazilian supply was impacted in the first quarter due to heavy rains, while the COVID-19 pandemic temporarily curbed some operations. Vale's shipments averaged 4.48 million mt/month in the first half of 2020, then ramped up to 6.10 million mt/month in the second half, according to cFlow, Platts trade-flow software. In Australia, Rio Tinto was also impacted by operational issues.

Iron ore exporters beyond Australia and Brazil lifted their exports to China due to constrained demand elsewhere and high seaborne prices. China imported 11.77 million mt and 14.03 million mt in Q2 and Q3 from India, 114% and 80% higher year on year, respectively, customs data showed.