Monday, February 6, 2023
spot_img
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

LNG boosts CPLP 2022 results

Capital Product Partners L.P. released its financial results for the fourth quarter ended December 31, 2022. Highlights  Three-month periods ended December 31, 20222021Increase/(Decrease)Revenues$79.9 million$63.6 million26%Expenses$42.1 million$35.7...

Keppel Corp posts 9% drop in full-year profit

Singapore’s Keppel Corp said on Thursday its net profit for the year fell 9%, partly hurt by weak performance from its urban development business...

Stolt-Nielsen sees Q4 profits rise on strong markets

Stolt-Nielsen Limited reported unaudited results for the fourth quarter and full year 2022. The Company reported a fourth-quarter net profit of $95.3 million, with revenue...

Euronav delivers better-than-expected Q4 revenue

Euronav NV reported its non-audited financial results for the fourth quarter ended 31 December 2022. Hugo De Stoop, CEO of Euronav said: “Constrained vessel supply...

Wartsila: A challenging year with strong annual growth

HIGHLIGHTS FROM OCTOBER–DECEMBER 2022 Order intake decreased by 24% to EUR 1,638 million (2,150)Service order intake increased by 6% to EUR 791 million (747)Net sales...

Baltic index hits over 2-year trough on waning demand for larger vessels

The Baltic Exchange’s dry bulk sea freight index dropped to its lowest level in...

Luxury Cruise Market Holds Much Promise For Greek & East Med Hidden Gem Destinations

The appeal of Greece and the East Mediterranean as an ideal region for luxury...

Baltic index falls to over 2-year low as larger vessel rates slide

The Baltic Exchange’s dry bulk sea freight index fell to its lowest since June...

Baltic index logs worst month in 3 years

The Baltic Exchange’s main sea freight index registered its biggest monthly percentage fall in...

Baltic index snaps 9-day losing streak as panamax, supramax rates rise

The Baltic Exchange’s main sea freight index snapped its nine-session losing streak on Tuesday,...

DP World wins bid for development of a mega-container terminal at India’s Deendayal Port

DP World has won a major concession to develop, operate and maintain the mega-container terminal at Deendayal port in Gujarat, on the western coast...

Luxury Cruise Market Holds Much Promise For Greek & East Med Hidden Gem Destinations

The appeal of Greece and the East Mediterranean as an ideal region for luxury cruising will be one of the main highlights of the...

Port of Los Angeles proposes cruise terminal project

The Port of Los Angeles is inviting comments on a draft Request for Proposals (RFP) for the future development of a new Outer Harbor...

Port of Long Beach Closes 2022 with Second-Busiest Year

The Port of Long Beach marked its second-busiest year on record by moving 9.13 million twenty-foot equivalent units in 2022, allowing for a return...

Hapag-Lloyd AG acquires share in J M Baxi Ports & Logistics Limited

Hapag-Lloyd AG signed a binding agreement today under which it will acquire 35% of J M Baxi Ports & Logistics Limited (JMBPL) from a...