Iron ore awaits Covid easing

Seaborne iron ore prices remained in a holding pattern on Friday. Stocks are falling, but some volumes are trapped on transport, and the short term outlook remains clouded by Covid control measures.

The Kallanish KORE 62% Fe index inched $0.15/tonne higher to $151.35/dry metric tonne cfr Qingdao. The Kallanish KORE 65% Fe index gained $0.20/t to $175.20/dmt cfr, and the KORE 58% Fe index increased $0.32/t to $133.99/dmt cfr.

On the Dalian Commodity Exchange, September iron ore settled down CNY 132/t at CNY 890/t ($137.48/t), while on the Singapore Exchange May 62% Fe futures settled down 0.37/t at $150.77/t. The same contract for 65% Fe and 58% Fe futures settled down 0.59/t at $173.55/t, and up $1.64/t at $135.37/t respectively. In Tangshan, billet prices dropped CNY 40/t to CNY 4,830/t.

Chinese port inventories continue to decline, but renewed closures in Tangshan and elsewhere to control the spread of Covid continue to confuse the picture by disrupting the flow of material around the market. Iron ore stocks across 35 ports dropped 930,000t last week to 142.69 million tonnes, according to SMM. It notes the possibility of mill restocking pushing up prices ahead of the May Day public holiday.

While the outlook for the highly disruptive lockdown in Shanghai is improving, residents are unlikely to see a widespread lifting of restrictions until at least mid-May. Northern China is moving in and out of restrictions, including market-sensitive cities such as Tangshan. Logistics restrictions remain in place across a wide range of administrative boundaries.

Traders expect steel and raw materials markets to remain disrupted for some time, but are still keenly awaiting the impact of stimulus. Whether it makes economic sense, China appears to still be intent on coming close to its 5.5% GDP growth target. This target can only be achieved at the cost of inefficient stimulus and the retreat of economic reforms, but could set off a stronger cycle in steel and iron ore prices in the coming months.

Tomas Gutierrez UK