China’s iron ore port discount to maritime prices drops in March as import demand declines

China’s iron ore port price discount to maritime prices narrowed by $5.87/mt in one month and is expected to continue to decline in the second half of March amid weaker maritime demand than expected. forecast, despite high inventory levels in major Chinese ports and expectations. a recovery in domestic steel production in the second quarter.

The spread between port and sea prices, after normalizing to the same specifications, stood at $3.49/dmt on March 16 after steadily narrowing from $9.36/dmt on March 16. February 14th.
The port price of 62% Fe iron ore was valued at 966 yuan/wmt FOT East China on March 16, which is equivalent to $141.96/dmt based on import parity, and the price of Sea Reference 62% Fe IODEX was valued at $145.45/dmt CFR China.

In contrast, the port market traded at an average premium of $3.29/mt to the maritime market on a basis of 62% Fe for seven months in 2021, from late April to early November, and reached a record level of $19.69/mdt in May. ten.

The premium-to-discount slide coincided with port stocks rising to 160 million tonnes in the current quarter from less than 120 million tonnes in the second quarter of 2021, based on observations from market sources, and the spread ended 2021 with a discount of $1.51/dmt.

The port market has now been at a discount to the maritime market for four months, but this gap is expected to narrow in the second half of March as maritime demand, although strong, has proven to be weaker than market expectations.

“China’s iron ore port inventories have started accumulating since the fourth quarter of 2021 and reached a record high in mid-February after the Lunar New Year holiday, at over 160 million tons, this which is the highest level since May 2018 and close to the total record of around 163 million tonnes in 2018,” a Beijing-based steel source said. “Import loss peaked at the same time.” ,

End users have mostly postponed port market commitments since the Lunar New Year holiday due to ample supply of most brands of iron ore, and were now mostly buying on a day-to-day basis.

“We would like traders and dealers to build inventory on the port for us instead of transferring title to us to reduce costs and capital usage,” the source said.

The port market and the maritime market represent slightly different fundamentals, as the port market links to rapid demand and maritime indices refer to cargoes arriving a few weeks in advance,” said a trader in southern China.

“The port market can evolve much faster than the maritime side when demand increases. Due to the small parcel of 5,000 to 20,000 tons per port side transaction, transactions are completed quickly and prices can be very volatile during the day,” the trader said.
“On the other hand, the interest of port buyers can decline rapidly when market uncertainties increase, turning the import trade margin into a loss. The flexibility of the port market makes it a good complement to the maritime market,” added the merchant.

Market sources said the origins of port iron ore stocks were now different from 2018, although the total volume was similar, with a higher percentage of Brazilian brands and lower Australian brands in 2022.

“Brazilian iron ore inventories have recovered since the fourth quarter of 2021,” said a trader in northern China.

“Most of the cargoes were high in silica and low in iron and were not favored by Chinese steel mills during the heating season from October to March.

“From a productivity perspective, in order to prepare for the potential resumption of steel production in the second quarter, mills still need to source high-grade fines and ores from Australia, such as fines at 65% and pieces from the maritime market.”
Source: Platts