Trader procurement continued to boost spot demand in the Asian iron ore market, as trades got concluded at increasingly higher levels on the day, supporting a firming market.
The Platts 62% Fe Iron Ore Index rose $2.75/dmt to $111.50/dmt CFR North China.
"Many traders are taking positions now and this is pushing prices up a lot because the sellers also are aware they don't have to let go of cargoes at lower levels if they choose not to," a Hebei-based steelmaker said. "The traders are the ones who can afford to pay these high levels for spot cargoes. As mills, we won't even be able to go near these prices." A Jilin-based mill source agreed, pointing out that the market would see more strengthening as traders continued restocking.
"It is normal for iron ore prices to recover after falling for a sustained period of time," the source said. "Some buyers are returning to purchase more spot volume as they will want to buy now before prices rise too quickly to be above what they can afford."
Sources said however, that the mill camp was split in their attitudes toward spot procurement, based on their outlook of the market and where their ore inventory levels stood.
A Zhejiang-based trader said some mills felt the current uptrend could not be sustained as it was not supported by actual fundamentals, so these mills were holding back from buying as they believed prices would soften again shortly. But there were also other steelmakers who need to replenish on raw materials and were trying hard to buy now before prices firmed even more.
A Shandong-based steelmaker said the main problem that was preventing end-users from procuring spot ore cargoes was credit tightness.
"We are very limited by the lack of funding and this restricts our ability to buy spot material." Additionally, sources said that if mills default on loans, they would be denied new loans from the banks in the second quarter, and the stricter regulations explained partially why mills were finding it challenging to purchase spot ores.
"Chinese mills have to repay their loans by the end of March and they're pretty well-stocked for their production needs in April just by their contractual volumes alone," said the Singapore trader. "I'm seeing traders charging to lead the price uptrend in the spot market today, while mills are largely still on the sideline." The trader added that as many as five mill customers told him they were only willing to pay around $105/dmt CFR China for medium grade Australian fines, much lower than the actual traded levels for cargoes concluded Thursday.
Sources also said environmental controls by the Chinese government were getting more stringent, especially up north, brought about by the recent severe smog problems faced by major cities in the region.
"Government officials are doing checks every single day among the mills, especially those in Hebei," a steelmaker in the region said. "If the pollution issue worsens, then the mills there will immediately be made to cut steel output even more. These regulations will be slapped on instantly once the smog problem intensifies again."
In the meantime, market participants also said that high levels of port stocks in China were providing an alternative for seaborne cargoes because the former was a lot cheaper than the latter.
Port stocks of 61%-Fe Australian Pilbara Blend fines in Tangshan, northern China, were heard to have traded at Yuan 740/wmt ($106.50/dmt on an import parity basis) free-on-truck, including Yuan 35/wmt in port charges and 17% VAT.
Port stock inventories at the major ports of China were heard to be hovering over the 100 million mt mark, according to estimates by industry sources, just slightly down from the record level of 108 million mt reported last Friday.
Meanwhile, steel rebar futures continued on an uptrend as the most liquid October contract in Shanghai last traded at Yuan 3,284/mt ($535.50/mt), up Yuan 30/mt from Wednesday, and settled at Yuan 3,265/mt, up Yuan 42/mt on the day.