China iron ore import prices gain on limited restocking activity: TSI

BEIJING (Scrap Monster): China iron ore import prices at CFR Tianjin hovered around US$140/dry tonne on limited restocking activity in January when trading was interrupted by both the calendar and Lunar year holidays, according to The Steel Index monthly report.

TSI’s 62% Fe reference price started the month at US$138.3/dmt cfr China and finished the month at US$142.4/dmt. The average TSI 62% Fe reference price for the month, used to settle the majority of January derivatives contracts and as the basis for a growing number of monthly physical contracts, was US$140.35/dmt cfr Tianjin: up 2.9% m-o-m.

The monthly average synthetic net-back price for 62% Fe fines with low alumina FOB West Australia was US$133.82/dmt, up 6.7% on December helped by lower freight rates in January. For Brazilian fines, now typically sold on a current quarter spot average contract price, the 1^st quarter-to-date average synthetic netback FOB price for 66% Fe fines was US$134.96/dmt fob,2.9% higher than the Q4 average.

Adverse weather condition disrupted production in Australia and Brazil with Vale losing an estimated 2 mmt of production due to heavy rains affecting its operations in Brazil. Any seasonal shortages in Brazil and Australia are compensated by Indian exporters. But Indian exports are down $0% on year in December on recent increase in iron ore export duty to 30%.

China’s iron ore imports were up 11% in 2011 at 687 mmt.  With opinions mixed on the extent of the seasonal rebound in demand after Chinese New Year, many bears cited alarmingly high iron ore port stocks in China. CISA, the country’s Iron & Steel Association, also warned this would cap price gains. At the end  of last week, quayside inventory stood at 98.4mt. However when compared to import levels, this represents the equivalent of just 1.6 months of stocks—historically not particularly high, TSI report said.

Iron ore market dynamics will be determined by China demand from steel industry. Early indications show production starting the year on a stronger footing, with the China Iron & Steel Association’s estimates of crude steel output over the first ten days of January at 1.69m t/d, 4% higher than daily rate at the end of December. Some mills are reported to be restarting idled blast furnaces. But mills have been reluctant to pay any more for pricey imported ore with steel prices still stagnant at low levels.

Official data showed growth slowing in most key steel consuming sectors, such as  fixed assets - including real estate - machinery and autos last year. In January HSBC’s China manufacturing PMI again came in below 50, suggesting continued contraction in the sector, albeit at a slower rate. China’s official survey beat expectations, however, staying above 50.

Major Chinese mills, including Baosteel, Wugan, Shougang and Angang have all rolled over their January prices for February, reflecting their cautious stance towards the market. Most traders report that they will continue to hold limited inventory. Many are still struggling to obtain credit, TSI monthly report added.