Iron ore retreats, scrap jumps in uncertain market

Seaborne iron ore prices fell back on Thursday, while scrap prices were still catching up rapidly. Strong Chinese steel output continues to support raw materials prices, but speculators took a hit to their confidence, sending futures prices lower.

The Kallanish KORE 62% Fe index fell $5.34/t to $220.64/dry metric tonne cfr Qingdao. The Kallanish KORE 65% Fe index dropped $5.09/t to $254.49/dmt cfr, but the KORE 58% Fe index was flat at $182.90/t,

On the Dalian Commodity Exchange September iron ore settled down CNY 47/t at CNY 1,268/t ($196.48/t), while on the Singapore Exchange June 62% Fe future settled down $16.51/t at $210.83/t. The same contract for 65% Fe and 58% Fe futures settled down $16.44/t at $245.20/t, and unchanged at $184.47/t respectively.

Chinese scrap prices continue to increase however after lagging the sharp increases in iron ore. 6mm+ heavy scrap delivered to mills in the Yangtze River Delta increased CNY 133/t on Thursday to CNY 4,180/t. There was some mix in confidence however. Binxin Steel in Jiangsu cut its scrap purchasing prices by CNY 30/t on Thursday. Many more mills hiked their purchasing prices however, including a CNY 270/t hike in Shagang’s Heavy 3 purchasing price to CNY 4,190/t. In Tangshan, billet prices increased CNY 50/t to CNY 5,820/t.

Chinese steel output remains at high levels, supporting both iron ore and scrap demand. According to the China Iron and Steel Association (CISA), its member mills produced crude steel at a rate of 2.418 million tonnes/day in the first ten days of May. That was up another 0.75% from the end of April and 17.84% higher y-o-y.

Sentiment has been hit however by weak lending data for April, and by continuing comments by senior politicians that commodity prices need to be brought under control. This took the wind out of some of the speculative buying on futures markets.

Tomas Gutierrez UK