Iron ore futures continued to hover above the $1,000/mt mark, following a rally in the afternoon session.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) went up further by 2.60% day-on-day or RMB 26 to RMB 1,026.50/mt on Thursday.
The steel rebar contract on the Shanghai Futures Exchange, followed the rally and closed at RMB 4,175/mt, up 1.73% or RMB 71 day-on-day.
Good pre-holiday restocking
The high futures prices attributed to the better Chinese restocking activities, which may continue well into the January next year, as some mills did not stockpile enough for the holiday season.
The intensity of the restocking activities was driven by good steel margins, as the Chinese hot rolled coil sales margins reached $86/mt in early December, as compared to $26/mt in early November, according to Platts data.
So far, the flat steel demand was robust throughout December, which caused some trade participants to think that domestic demand may have peaked and therefore might slow down during Q1 2021.
More upside for pellets
Chinese steel mills had consumed iron ore pellets at a fast rate, which led to recent price upticks. As Mysteel assessed the price of 62% iron ore pellet at RMB 1,280/wmt in Qian’an, up RMB 45/wmt on-week, as of Dec 16.
Furthermore, the price upticks of iron ore pellet were due to limited availability in the spot market. As most of the Indian producers prefer to sell pellets domestically for better prices, rather than offering them in the international market.
Thus, the high pellet prices caused more Chinese mills to use iron ore lump instead which were cheaper. However, the lump usage was heard to be utilized at a high rate in the blast furnaces, that some mills were switching to using pellets instead.