Bulk Buys: Iron ore futures look firm, China’s port bottlenecks keep lid on coking coal prices
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The Singapore Exchange’s March futures contract for iron ore was trading Tuesday at $US154 per tonne, and forward prices dipped to $US140 per tonne for July.
Futures prices can be a guide to near term trends and in this case indicate the iron ore market will stay relatively firm for the first half of the year.
Iron ore shipments for dispatch to Chinese ports were changing hands this week at $US160.50 per tonne ($207.60/tonne) and rebounded $US3.45 from a week earlier.
Seaborne market prices are at levels last seen in mid-2013, having nearly doubled from their March low of $US81 per tonne.
China’s steel sector is consuming iron ore imports at a record rate of around 100 million tonnes per month as Beijing pursues a steel-intensive infrastructure recovery for its economy.
The Asian country’s iron ore imports hit 1.17 billion tonnes in 2020, rising 9.3 per cent on year from 1.07 billion tonnes in 2019, according to Reuters.
On their current trajectory, import volumes for China could reach 1.27 billion tonnes this year, and 1.38 billion tonnes in 2022.
China has been able to secure additional iron ore cargoes in a constrained market partly because other countries’ steel production has been severely crimped by the COVID-19 pandemic.
“The jump [in imports] came as overseas iron ore consumption plunged, while China had strong demand,” Reuters quoted Hutai Futures chief analyst, Wang Yingwu as saying.
Analysts are starting to raise concerns about supply issues in the iron ore market as China’s steel production climbed to around 1.1 billion tonnes in 2020.
“For supply, we have substantially reduced our production forecast for the two largest producers, Vale and Rio Tinto, across the forecast period following Vale’s lower guidance from December, and potential difficulties from Rio Tinto’s Juukan Gorge scandal,” investment bank Credit Suisse said, reported S&P Global Platts.
The market’s robust demand and tightening supply is leading some analysts and commentators to suggest a new super cycle for iron ore may lie ahead in the 2020s.
Iron ore shipments from WA’s Pilbara trading hub reached a record 874.2 million tonnes in 2020, and are forecast to touch 900 million tonnes this year.
Australian iron ore miners have been able to capture an increased share of the seaborne market due to an underperformance by competitor miner Vale.
The Brazilian iron ore shipper’s production came in at 300.5 million tonnes in the 2020 year, down slightly from its 2019 production of 302 million tonnes.
Vale suffered a number of operational setbacks last year that were compounded by the COVID-19 pandemic which has spread through Brazil.
The company’s Brumadinho iron ore mine dam failure in 2019 has also weighed on its iron ore performance.
Last week Vale reached a $US7bn settlement with Brazil’s Minas Gerais state and the Brazilian government for the environmental and social aspects of the incident.
The agreement has removed some uncertainty over the company’s suspended iron ore operations, said S&P Global Ratings.
Vale has a production target for iron ore this year of between 315 million to 335 million tonnes, and wants to get up to a production capacity of 400 million tonnes in 2022.
Increased Brazilian iron ore production could go some way to alleviating the seaborne market’s supply tightness this year.
ASX resources company Macarthur Minerals (ASX:MIO) has signed an outline agreement with Esperance port for its Lake Giles iron ore project in WA.
The agreement paves the way for Macarthur Minerals to secure a shipping corridor for its magnetite iron ore product through the Southern Ocean port that can handle Capesize-class ships.
Included in the agreement is a concept study for a proposed 300,000-tonne capacity storage shed and a new rail unloading station at Esperance for the company’s exports.
“The memorandum of understanding with Southern Ports Authority provides a clear pathway that can support the delivery of the company’s current feasibility study, and it is the next critical piece of the route to market infrastructure puzzle following Macarthur’s announcement last year that it had received a proposal for an agreed pathway to develop a commercial track access agreement for below rail capacity from Lake Giles to the port of Esperance,” chief executive, Andrew Bruton, said.
First shipment from the Lake Giles project is set for early 2024, and the project has an indicated magnetite resource of 54 million tonnes at 47.2 per cent iron.
The company is targeting a production rate of 4 million tonnes per year for Lake Giles.
Venture Minerals (ASX:VMS) has appointed a technical consultant for its Riley iron ore mine in Tasmania that is ramping up to production in the next few months.
The company plans to start exports through the island’s port of Burnie in the April-June quarter, and it has accelerated the construction of a wet screening plant for iron ore.
“Iron ore prices have been strong throughout 2020 and into 2021 with the outlook for the rest of the calendar year remaining positive due to continued demand generated by Chinese government infrastructure spending and ongoing supply concerns in Brazil,” said the company.
Current iron ore prices are well above the levels required for the project in a feasibility study of $US90 per tonne for 62 per cent iron ore, and lower fuel prices also support the project.
“The scene is now set for the company to move rapidly towards its first iron ore shipment in order to capture these historically high iron ore prices,” managing director, Andrew Radonjic, said.
Steel reinforcing bar (rebar) prices at the Shanghai trading hub edged back from $US700 per tonne ahead of the country’s national holiday.
Construction site activity is winding down for the traditional Spring festival holiday for Chinese New Year at the end of this week, reports said.
At the Shanghai trading hub, rebar products were heard to change hands at $US665 per tonne, compared with $US671.50 a week ago, reported Metal Bulletin.
Price pressure for Chinese rebar products is starting to ease with rising stocks in the market due to the upcoming holiday.
Inventory levels for rebar products totalled 4.5 million tonnes for 20 Chinese cities, representing a month-on-month rise of 25 per cent, said the China Iron and Steel Association, reported Metal Bulletin.
Steel rebar prices have also experienced a drop-off in Western markets such as Europe and North America after robust demand in the northern hemisphere winter season.
On the London Metal Exchange, prices for its one-month forward rebar contract were trading at $US600 per tonne Monday.
Prices for the steel rebar contract slumped to $US560 per tonne in early February from a recent peak of $US660 per tonne in early January.
Prices for Australian hard coking coal inched up a marginal 50 cents over the week to $US133.55 per tonne, mostly on demand from non-Chinese buyers.
Chinese buyers remain ambivalent about Australian cargoes and a bottleneck in Chinese ports has exerted heavy downward pressure on spot market prices.
Lengthy delays have affected ships arriving at China’s ports and dozens have been forced to wait offshore for berthing slots.
A handful of queuing ships have been allowed to enter Chinese ports in the past few weeks, but reports stressed this was a “goodwill gesture” to stranded seafarers.
For the charterers of vessels waiting to unload cargoes at Chinese ports, the long waiting time has translated into rising demurrage costs that are payable to ship owners.
The added cost of vessel delays at Chinese ports for ships carrying coking coal from Australia has in itself acted as a deterrent to potential buyers.
A number of ships waiting to enter Chinese ports have been re-directed to other countries such as India, after their cargoes were resold to other customers to cut trading losses.
“This indicates that the [ship owners] have not seen any signals from Chinese authorities allowing those cargoes to clear customs so far,” a steel source in East Asia told Metal Bulletin.
Slower demand for Australian coking coal is showing up in lower shipping volumes in the supply chains of Queensland coal ports.
Dalrymple Bay Infrastructure’s (ASX:DBI) coal terminal’s throughput rate is currently around 59 million tonnes on an annualised basis, and well below its target shipping volume of 75 million tonnes per year.
The Queensland multi-user terminal had only 15 ships in its vessel queue Tuesday, and for optimal performance the terminal needs around 20 ships.
Another Queensland coal port, Gladstone, did not ship any coal exports to China in January, December or November, and only 400,000 tonnes in October, according to port data.
Gladstone shipped 1.4 million tonnes of coal exports to China in January 2020, equivalent to one-in-five export tonnes that month.
Other countries have supplanted China, with India, Japan and Korea the top destinations for Gladstone’s coal exports.
These three nations each accounted for 4 million to 5 million tonnes in the October-December 2020 quarter out of Gladstone’s total coal shipments of 18.5 million tonnes for the three-month period.
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