Monday, June 5, 2023
HomeHeadlinesPremium iron ore’s outperformance is a bearish signal

Subscribe

To our FREE newsletter
Get all the latest maritime news delivered straight to your inbox.

Premium iron ore’s outperformance is a bearish signal

Spot iron ore prices are now lower than the depths plumbed during the early part of the global coronavirus pandemic last year, and market dynamics are yet to signal any recovery in top importer China.

An indicator of the state of the market has in the past been the differences between the various grades of the steel-making ingredient.

In times of strong demand, the lower grade 58% iron ore tends to outperform both the benchmark 62% and the high-quality 65% grades.

This is because steel mills in China, which buys almost 70% of global seaborne iron ore, try to produce as much steel as they can by running their plants at high levels of capacity utilisation.

However, when steel demand weakens, as is currently the case, the mills tend to switch to using higher-grade iron ore in order to maximise the amount of steel produced from as small a quantity of raw inputs as possible.

The current pressure to conserve power in China amid a shortage of domestic coal ahead of the northern winter, also means steel mills will try to produce as much steel as possible while conserving energy.

This dynamic is reflected in the current spot prices, with 65% ore performing better than the lower quality material, notwithstanding that all three main grades have seen prices plummet since the record highs reached in May.

High-grade 65% iron ore, as assessed by commodity price reporting agency Argus, ended at $111.35 a tonne on Monday, down 58.1% from its all-time high of $265.80 on May 12.

The 62% grade was at $93.55 a tonne, down 60.3% from the peak of $235.55 on May 12, while 58% ore ended at $66.40, down 67.9% from its high of $207.10.

Conversely, when iron ore prices started rallying from their coronavirus lows as China ramped up stimulus spending to boost the economy, it was the 58% grade that outperformed.

It jumped 203.4% from its 2020 nadir of $68.25 a tonne to the peak in May this year, while the 62% grade chalked up a gain of 196% and 65% ore rose 181.3%.

It would therefore be logical to assume that an indicator of when the worst has passed for spot iron ore prices will be when the lower grade once again performs better on a relative basis to 65% ore.

STEEL OUTLOOK

This is unlikely to happen until Chinese steel mills are allowed to once again maximise output, as they did in the first half of 2021, when several monthly record high production figures were achieved.

Given the energy crisis in China is not quite over, and there is also official pressure to limit air pollution over winter and ahead of the Winter Olympics in Beijing in February, it may be some time before steel output returns to potential.

China’s daily steel output in September was 2.46 million tonnes per day, the lowest since December 2018, and a drop of 21.2% from the same month in 2020.

Early reports suggest October’s steel output may be even lower than September’s, as the industry heeds the official target to limit annual production to no more than the record 1.06 billion tonnes from last year.

Output in the first nine months was 805.89 million tonnes, up 2% from the same period a year earlier, according to official data.

China’s manufacturing sector contracted for a second month in October, according to the official Purchasing Managers’ Index, a bearish signal for steel demand, while there are also questions over the resilience of the construction sector in the world’s second-largest economy.

Overall, there is little to suggest that China’s iron ore demand will stage a recovery in the coming months. Any such improvement will likely only come in the first quarter of next year and this assumes an improvement in the economy.

Source: Reuters

Related Posts

Video

Finance & Economy
Shipping News
Ports

BW LPG appoints new CFO

BW LPG announced that it has appointed Ms Samantha Xu as Chief Financial Officer (CFO), effective 1 September 2023. Ms Xu has over 20 years...

Frontline Posts Highest First Quarter Results Since 2008

Frontline plc reported unaudited results for the three months ended March 31, 2023: Highlights Highest first quarter profit since 2008 of $199.6 million, or $0.90 per...

Diana Shipping posts slightly lower Q1 profit; takes out $123m in loans

Diana Shipping reported net income of $22.7 million and net income attributed to common stockholders of $21.3 million for the first quarter of 2023....

CMA CGM Profit Eases as Container Transport Demand Wanes

CMA CGM expects its profit to ease further for the rest of the year after a first-quarter decline, as an uncertain economy and influx...

Seanergy ‘well positioned to benefit from positive trend in Capesize market’

Seanergy Maritime Holdings Corp., announced its financial results for the first quarter ended March 31, 2023, and declared a quarterly dividend of $0.025 per...

Taiwan Shipping Firms Set to Hand Out Bumper Bonuses Again

Taiwanese shipping companies are handing out bumper mid-year bonuses despite a slump in global...

Baltic index hits over 3-month low amid lower coal imports

The Baltic exchange’s main sea freight index extended losses for the 15th session straight...

Baltic index falls for the month as vessel demand wanes

The Baltic exchange’s main sea freight index recorded its first monthly decline in four...

North Korea missile tests endanger shipping, UN maritime agency told

North Korean missile tests are endangering the safety of commercial shipping in busy sea...

Singapore Clamps Down on Tankers as Dark Fleet Grows

Singapore’s detentions of oil and chemicals tankers have surged since early last year, highlighting...

DP World Completes Terminal Expansion Project Vancouver Port

DP World has completed the AED954 million ($259.78 million) Centerm expansion project, increasing container throughput at the Port of Vancouver by 60 percent. The terminal...

DP World completes AED 954 million Vancouver port expansion

DP World and the Vancouver Fraser Port Authority have celebrated two historic events – the completion of the Centerm Expansion Project at DP World...

Alexandroupolis port gets 24 million euros of EU funding

Greece has secured 24 million euros ($26 million) in European Union funding to upgrade its northern Aegean Sea port of Alexandroupolis, privatisation agency HRADF...

Port Hedland Iron Ore Exports Down 5% in April

Pilbara Ports Authority (PPA) has delivered a total monthly throughput of 57.7 million tonnes (Mt) for April 2023. This throughput was a two per cent...

APM Terminals Reveals $1 Billion Investment in Brazil

APM Terminals’ CEO Keith Svendsen has pledged an investment of about US$1 billion in the company's Brazilian operations up to 2026. The amount includes around...