Having fallen below $200/dmt by the end of May, the Platts 62% Fe iron ore index, or IODEX, regained strength in June on persistently tight supply and resilient Chinese demand.
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Since June 8, the IODEX had been consistently trending higher, reaching $222.3/dmt by June 14.
Chinese steel margins rise on expectations of further steel output curbs
Chinese steel demand and prices usually weaken in June as the wet monsoon season and onset of hot weather hamper construction activity. However, Chinese hot rolled coil and billet prices rose in the week ending June 13, as market expected further output curbs to tighten steel supply. Chinese cities such as Qinhuangdao and Tangshan in Hebei province both announced new measures June 11 aimed at countering air pollution. Some sources said they expected more regions to implement similar curbs, pointing out that crude steel output has still grown this year despite the government's stated to reduce it. As a result, Chinese steel margins showed early signs of recovery, creating more headroom for iron ore prices.
Tightening iron ore port stocks, widening import margins
What is more remarkable than the strength of seaborne iron ore prices and has not received the attention it deserves is the strength of portside iron ore prices. Since May, Chinese portside medium-grade prices, or IOPEX, have been consistently more expensive than the IODEX, on a CFR Qingdao basis. The positive spread, i.e. the import margin, gave traders the confidence to bid for seaborne cargoes, since even selling the cargoes at the ports, as a usual last resort, could still yield a profit. The import margin widened on June 11 as portside prices outpaced seaborne prices.
The strength in port prices on June 11 could have been driven by a tightened short-term domestic supply outlook, as a mining accident in Shanxin province put all iron ore underground activities there on hold. Furthermore, seaborne supply remained tight, especially for the mainstream ores. Coupled with delays in discharging some iron ore cargoes due to the coronavirus pandemic, it has resulted in lower Chinese port stocks recently.
Chinese mills had been buying hand-to-mouth from the ports for several weeks, according to sources. Tightened domestic concentrate supply and higher Chinese steel margins could increase restocking demand from the mills, nudging port prices higher in the near term.