Iron ore prices have tumbled to less than half their record high in May, squeezed by demand cuts in China and margin pressures from metallurgical coal prices soaring to unprecedented levels.
The free fall in iron ore prices has been so fast that some portside traders in China are facing losses almost as high as the price of ore itself. The Argus ICX 62pc fines index fell by 57pc to $100.45/dry metric tonne (dmt) on 17 September from an all-time high of $235.55/dmt on 12 May.
An iron ore concentrate seller reported a loss of 600 yuan/wet metric tonne (wmt) ($93/wmt) for a deal at Yn1,070/wmt on 14 September, Singapore-based market reporter Kitty Xie and her colleagues reported last week. Losses have likely widened this week. Portside markets have since fallen by another $20/dmt equivalent. Concentrate indexes against the 65pc fines index averaged $149.17/dmt during 1-17 September, down from an average of $251.25/dmt in June, $244.36/dmt in July and $183.37/dmt in August.
Australian export prices for premium low-vol hard coking coal more than tripled over the same period to $359.75/t fob Australia, the highest since the index launched in 2010.
Output curbs further policy goalsThe collapse in iron ore prices has been mainly driven by China's aggressive steel output curbs and an accompanying slowdown in real estate investment, both of which are helping China meet policy goals against commodity price inflation, a widening wealth gap and carbon emissions.
Beijing launched a fight against unreasonable commodity price increases the day after iron ore and Tangshan billet hit all-time highs.
Steel production curbs are a recurring theme in China, but they are not broadly enforced much of the time. Beijing is strictly enforcing its push this year to keep production flat to 2020 levels. August crude steel output fell by 13.2pc on the year, the biggest on-year decline since 2008, and industry data show the curbs are holding into the peak season.
Steel output curbs are cushioning steel prices during a real estate slowdown. China's new real estate starts fell by 16.8pc and sales fell by 15.5pc on the year in August, National Bureau of Statistics data show. Real estate projects face a credit crunch and weaker sentiment, with China's largest developer Evergrande at risk of default and China's new 'common prosperity' policies taking aim at housing costs.
The steel output curbs also give China credibility as its rolls out plans to cap carbon emissions by 2030 ahead of the UN's upcoming COP 26 carbon summit in Glasgow, Scotland, in November.
No coal price relief even before La NinaIron ore has tended to shrug off China's on-and-off steel output curbs because the resulting higher steel prices always create margin room for ore. But ore and steel prices have decoupled in this latest round because the cuts are so significant and met coke has grabbed margin room.
China's coking coal prices have soared as a result of constrained domestic mining, Covid-19-related disruptions to Mongolian imports, Beijing's ban on Australian imports and limited spot supplies of US, Canadian and Russian coal.
Prices for top-tier low-sulphur coking coal in Shanxi province have risen by more than 150pc to Yn4,100/t free-on-rail basis since May. That equates to $552/t excluding a 13pc value-added tax (VAT). Premium low-vol hard coking coal import prices were assessed at a record $560/t cfr China on 17 September before taxes and port fees.
Supplies could tighten further. Australia's main forecaster the Bureau of Meteorology moved to La Nina Watch last week, raising the chances for above-average rainfall to 80pc for October-December in Queensland and New South Wales, the biggest source of seaborne coking coal.
Met coke grabs margin shareThe parabolic move in coal prices has sent prices for downstream product met coke to record levels with 62 CSR at $665/t fob China and 65 CSR at $683/t fob last week. Domestic prices for Shanxi 65 CSR coke rose to Yn4,260/t, or around Yn4,500/t ($695/t) at the port.
Met coke has grabbed iron ore's share of steel costs in China, accounting for 47pc of the $753/t Shanghai rebar ex-warehouse price compared with ore at 21pc of the price on 17 September. Ore made up half of the cost of Shanghai rebar compared with met coke at a third of the price in mid-July.
These estimates assume 1.6t ore, 0.53t of coke, a 15pc scrap charge and Yn250/t operating costs per tonne of rebar produced. The rebar price excludes the 13pc VAT.
Argus assesses more than 250 iron ore, coking coal, steel and ferrous scrap prices in the Argus Ferrous Markets service.Find out more
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Argus Media Limited published this content on 20 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 September 2021 11:41:08 UTC.
