In Commodity News 04/05/2015
Debate around the catalysts for iron ore’s 26% price rebound in April has moved from long-term sentiment to emphasize short-term steel industry fundamentals.
China’s crude steel production had kicked up in recent weeks, and restocking for the raw material from seaborne markets has increased as a result, analysts and market sources said.
Longer-term, analysts and sources wonder if there is much room left for the iron ore rally to continue into May.
Platts IODEX 62% fines benchmark had risen to $59.75/dry mt CFR China on Monday, up from $47.50/dmt on April 2. By Thursday it had fallen to $55.50/dmt.
The recovery in Chinese crude steel output has boosted output in mid-April to an annualized 628 million mt, up 6.8% from a month ago, and underpinned better purchasing sentiment in the raw material, Macquarie Capital analysts said Thursday.
The bank’s report also cited the latest data from the China Iron and Steel Association for April 11-20, which showed output had climbed 1.5% on the preceding 10-day period.
The output increase “has been a key reason behind the recent iron ore price rally,” Macquarie said.
Morgan Stanley said a late restocking season “buying spree” was occurring, aided by China’s recent bank stimulus with the potential for iron ore prices to climb further.
However, the bank is not oblivious to the additional iron ore tons on its way from the large seaborne miners, on top of the seasonal increase likely later this year. Crude steel output is set to reduce ahead of the winter too, it said.
Lump iron ore premiums have shot up over April and demand for pellets in China now looks to be better supported as a result, said sources involved in trade this week.
Purchasing ahead of the more air pollution-sensitive summer season is now in full swing.
Longer-term supply expansion for seaborne producers may be assured but growing questions around the appropriate pace and scope of increases in volumes offered may have supported the rally.
BHP Billiton earlier signaled it may be done expanding iron ore capacity from Australia for the time being as it deferred necessary harbor work.
Fortescue Mining Group’s well publicized criticism of the expansion strategies of its two bigger neighbors operating in the Pilbara, Western Australia indicate strengthening industry opinions for supply restraint.
Atlas Iron has idled mines already.
Supply many need to better match slower global demand growth led by China.
Should concerns that China has already neared a peak for steel output hold true, miners’ expectations of supplying growing volumes of iron ore into a further decade of solid steel growth may need to be reassessed.
Cliffs Natural Resources, focused now solely on US iron ore production as it seeks a buyer for its Australian operations, said Wednesday that major expansions in Brazil and Australia may not all materialize given low prices and capex financing requirements.
Iron ore prices started to fall mid-week as some buyers questioned the sustainability of the recent price increases against steel prices.
Platts found the restocking drive mid-month in China starting to peter out.
