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iron ore futures in China and Singapore slip may stall spot recovery

Iron ore futures in China and Singapore edged lower again after recent gains, pressured by plentiful supply forcing Chinese mills to unload more cargoes into the market.

Traders said that an upbeat reading on China’s manufacturing sector for June helped boost spot iron ore prices on Monday but the raw material may decline again as supply outstrips growth in demand from the world’s top importer.

A trader in Shanghai said that Chinese steel producers are selling iron ore cargoes arriving in July under their long-term contracts with miners and using the cash to buy cheaper iron ore sitting at China’s ports.

He said that we’re doing this business now with mills who are trying to sell their long term cargoes that are index-based and are more expensive than those at the ports.

Australian 61% grade Pilbara iron ore fines are currently trading at around CNY 600 per tonne at China’s Shandong port, or about USD 82 to USD 83 excluding port charges and taxes. That compares to a price of USD 93 per tonne for a new seaborne cargo of the same grade on Monday.

The global iron ore supply surplus, which Goldman Sachs sees hitting 72 million tonnes this year has pushed Chinese mills to cut back on long term contracts in favour of cheaper spot cargoes.

Iron ore for delivery in September on the Dalian Commodity Exchange was down nearly 1% at CNY 684 per tonne by midday. It touched a three week high of CNY 699 on Monday.

The August iron ore contract on the Singapore Exchange dropped 1.2% to USD 92.79 per tonne, with the July and September contracts also slipping. The weaker futures could again on spot iron ore prices which have rebounded since hitting a 21 month low last week.

According to data provider Steel Index, benchmark 62-percent grade ore for immediate delivery to China .IO62-CNI=SI climbed 1.4% to USD 93.40 per tonne on Monday. It marked a fifth straight day of gains since the price struck USD 89 on June 16, the lowest since September 2012.

Source – Reuters


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