Burst of Excitement in the Iron Ore Market

Brazil's superior Iron Ore Carajas (IOCJ) has experienced a bit of a roller-coaster due to a mix of market variables: moderate demand, evolving mill margins, increased portside inventories in China, and persistent Brazilian export prices even in the rainy season, industry insiders reported on September 8.

As the well-known Platts Iron Ore Index (IODEX) edges towards a mark of $120/dmt CFR in China, the gap with the premium 65% Fe material has surprisingly closed to a three-year low. This comes as Chinese mills showed tepid interest in making purchases set for delivery in the forthcoming two to eight weeks this September.

An intriguing development, the 65%-62% Fe difference, often seen as a gauge of preference for the higher 65% Fe content over the 62% Fe fines, hit a surprising low on September 4. This was due to a quieter demand scenario.

The last time we saw such a narrow gap was on August 18, 2020, when it was $7.85/dmt, as indicated by the data.

Given the modest production profits, mills seem to be leaning towards the more affordable lower iron content materials. A local iron ore expert in China remarked, "With the rising appeal of lower Fe fines, the difference between 65% and 62% Fe fines has naturally shrunk."

Several factors, including subdued HRC and rebar margins, are influencing mills to opt for other materials over high Fe fines. The ultimate driver? The cost of production remains a major determinant for them.

Interestingly, the appeal for IOCJ fines among steel mills has been somewhat cool. This is due to the evolving steel production margins in China. Many local mills are now showing a penchant for medium-grade fines over their high-grade counterparts, as per earlier reports.

With steel profits not being at their peak, it's logical to expect the 65%-62% Fe gap to tighten further, voiced a knowledgeable iron ore merchant from east China.

On a brighter note, for nearly three months, the Asian iron ore sphere has been enjoying affirmative import margins. Seaborne acquisitions have shown to be more pocket-friendly compared to their Chinese portside counterparts.

Commenting on this, a trader from north China noted, "Why opt for high-grade fines when the profitability is not peak and medium-grade fines are offering attractive margins?"

Switching to supply news, even as Brazil faces its annual rains in Q4, the availability of IOCJ remains robust in the spot market, thanks to steady exports from the region.

An international dealer was quick to highlight that even persistent rains hadn't dented the Carajas fines export. In fact, high Fe fines' supply remains strong and uninterrupted.

Drawing attention to the recurring nature of the rainy season, another trader from north China said that any potential disruptions had already been anticipated and accounted for.

In recent updates, there have been nine IOCJ trades in the seaborne market from Q3 to date, accumulating to a volume of 1.54 million mt. This showcases a rise from the earlier quarters, with Q2 recording 1.12 million mt and Q1 at 1.07 million mt.

With IOCJ portside stocks soaring to a three-year peak of nearly 2.3 million tons at select ports as of September 5, one iron ore dealer stated, "The higher-than-average portside availability is definitely influencing the diminishing spread."

Analysts at S&P Global anticipate the gap between 65% Fe and 62% Fe to initially contract as the year progresses and the benchmark 62% Fe IODEX price descends. However, come Q2 2024, expect a revival in the spread owing to enhanced market vigor.

Recent evaluations placed the 65% Fe CFR Qingdao index at $126.3/dmt on September 7, a slight dip from the previous day, as per the records.

Source : Platts