Iron ore futures set for another record-breaking level, due to market concerns over reduced supply from Brazil’s Vale.
The most-traded iron ore for January 2021 delivery on China’s Dalian Commodity Exchange then rose by1.63% or RMB 15.50 day-on-day to RMB 937/mt on Thursday.
The steel rebar contract on the Shanghai Futures Exchange, however dipped by 1.23% or RMB 48 day-on-day to $3,866/mt, due to market concerns on slower rebar consumption during winter season.
High steel margins for Chinese mills
The spectacular iron ore rally was fueled by good steel margins, as trade sources stated that the margins for hot-rolled coil went up above RMB 300/mt in northern China, while cold-rolled coil margins reached over RMB 400/mt level.
The good margins resulted more end-users to seek for mainstream medium grade Australian fines like PBF, as well as MAC fines and Jimblebar fines for their cost-efficiency.
However, some softening of domestic steel prices had been observed recently, especially for rebar prices due to expectation of lesser construction activities during winter season.
Lesser Brazilian supply and lower steel inventories
The revision of Vale’s annual guidance at 300-305 million mt from previous guidance of 310-330 million mt, also sparked supply concerns among trade participants.
The reduction in Brazilian supply may affect a number of southern China-based steelmakers, which depended on Brazilian fines as part of their sinter feeds.
Meanwhile, the Chinese traders’ inventories slipped further for the eight consecutive weeks to 14.5 million mt over the Nov 7- Dec 3 period, down 4.1% on-week. The lower steel inventories then provided further price supports for steel and iron ore prices.