Iron ore futures in China and Singapore advanced on Monday after stockpiles of the steelmaking raw material at Chinese ports fell to the lowest since April, helping ease some concerns in a market that had been hammered by bountiful supply.
Stocks of imported iron ore at China’s main ports dropped 1.35 million tonnes to 107.9 million tonnes as of Oct. 17, according to industry consultancy SteelHome that tracks the data.
The decline in port stocks since late September in top iron ore consumer China reflects rising demand for yuan-priced cargoes as smaller steel producers cover needs, said a Shanghai-based iron ore trader.
“There’s still a lot of uncertainty in the market that’s why for a mill it’s better to just shop domestically than to put their money on a fresh seaborne cargo,” he said.
The most-traded iron ore for January delivery on the Dalian Commodity Exchange climbed 2.3 percent to close at 580 yuan ($95) a tonne. The November iron ore contract on the Singapore Exchange rose 1.6 percent to $81.56 per tonne.
To sustain iron ore’s gains, it needs to be backed by firmer China’s steel prices, said the trader. “If steel prices don’t stabilise and keep coming down it’s not going to be easy for iron ore to sustain its upturn,” he said.
The most-active rebar for delivery in May on the Shanghai Futures Exchange ended unchanged at 2,614 yuan per tonne.
MOODY’S OUTLOOK
Moody’s Investors Service said the growing oversupply in the iron ore market is damaging the credit quality of producers and poses risks to the downside.
“Low-cost producers such as BHP Billiton Ltd, Rio Tinto and Vale SA have more tolerance to absorb some degree of lower prices in the near term than Cliffs Natural Resources Inc, Fortescue Metals Group Ltd , and Atlas Iron Ltd, but the compression of earnings and cash flow is nonetheless value destructive for the sector,” Moody’s Senior Vice President Carol Cowan said in a report released on Friday.
Cliffs said on Friday it would write down the value of its coal and iron ore assets by $6 billion due to weak prices, putting it in breach of debt covenants and sending its shares down as much as 6.8 percent.
Citing expectations for muted growth in global steel output through at least into 2016, Moody’s said it was looking at prices in a range of $75-$85 for that period.
Iron ore for immediate delivery to China .IO62-CNI=SI edged up 0.1 percent to $80.60 a tonne on Friday, according to data compiled by The Steel Index.
The top revenue earner for Vale, Rio and BHP, iron ore prices have tumbled 40 percent this year, touching a five-year low of $77.50 at the end of September.
Three cargoes of Australian iron ore were sold on the globalORE platform on Monday, with two 62-percent grade material traded at $81.50 per tonne, up from $80 last week, the platform said.