China's portside stocks of imported iron ore fell by around 7.7pc on the month in May, but an uptick in iron ore arrivals since the second week of May would increase supplies and pressure iron ore prices this month, said the China iron and steel association (Cisa).
Portside stocks on 31 May were at 124mn t compared with 134.3mn t on 30 April, according to Cisa's month-end stock data.
Brazilian and Australian iron ore shipments rose sharply in the second week of May and a continued increase in arrivals along with lower steel output this month will lead to a fall in iron ore prices.
Domestic iron ore mines are producing more iron ore, while mills have also sharply increased the use of scrap in the converter burden to cut back on iron ore usage, said Cisa.
Steel demand has started its seasonal slowdown in China as the hot and wet June-August summer season sets in. Apart from the demand slowdown, a steep fall in profitability over the past few weeks because of higher iron ore prices could also prompt mills to cut back on steel production.
Cisa's members — around 100 large and mid-size steelmakers — posted a 19.38pc year-on-year decrease in profits, despite an 11pc year-on-year increase in sales revenues during the January-April period.
Steel prices fell by over 1pc on the month in May, while iron ore prices rose by around 7pc, said Cisa. "The price trends have seriously deviated. The sharp increase in iron ore prices has severely squeezed the profits of steel companies," said Cisa. Iron ore prices started to increase from early February as a tailings dam accident at Brazilian company Vale's Feijao iron ore mine raised concerns of a serious supply crunch this year.
Portside price moves to premium
The Argus PCX 62pc portside fines index gained by around 13pc in yuan terms in May. The seaborne-equivalent of the PCX index was at a discount to the Argus ICX 62pc seaborne index on average in May, although it moved to a premium in the first three days of trading in June.
The Argus PCX was at a discount of $3.17/dry metric tonne (dmt) to the Argus ICX in May, compared with a discount of $2.85/dmt in April. The Argus PCX started to move to a premium on the ICX from 30 May. The Argus PCX is at a premium of $2.68/dmt to the Argus ICX so far this month.
Among the key mainstream brands tracked by Argus in portside markets, BRBF fines traded at a 7.04pc premium on the Argus PCX in May compared with a 4.43pc premium in April, as demand for low-alumina ores showed an uptick amid limited availability of BRBF fines cargoes in portside markets.
PB fines traded in Qingdao was at a 0.8pc discount to the Argus PCX, while Caofeidian-traded PB fines was at a discount of 1pc to PCX. Newman fines' premium to PCX was stable at 2pc in April and May, while SSF fines' discount to PCX was steady at 14pc in April and May.
