Still got technical issues with charts today but the ore price was up Friday $1.60 to $113.60. 12 month swaps are up too a buck or two to $110.87, still in the recent trading range. However, rebar average sank further to 3375. Chinese port inventories were up a little on the week.
In short, the steel market is still stuffed but there’s a small bid creeping into iron ore as low inventories need replenishing. A little bounce is possible here.
In news, I missed this on Thursday, from the iron ore team:
China plans to scrap a decade-old iron ore import licensing system this year, an industry source with direct knowledge of the matter said, opening up an import market that takes two-thirds of the world’s international iron ore trade.
The move could also cut costs for domestic steel mills by eliminating licensed middlemen charging commissions for imports.
It could also mark the end of years of efforts by China, alarmed by its growing dependence on imports and the dominant role played by the likes of Rio Tinto and Vale , to wrest pricing power away from the big miners by strictly regulating trade.
“China will open up its iron ore trade from the second half of the year,” said the source who declined to be named as he was not authorisedto speak to the media.
“Import qualification licences will no longer be required in order to make the industry more market-oriented and give steel mills more choices.”
…”Some traders that held licences made a huge profit by selling imported iron ore to those unlicensed buyers over the past few years and the move means that they might lose the advantage,” said an iron ore trader in Shanghai.
Two ways of viewing this, both of which are probably right. The first is that the system has failed so should go regardless of timing. The mills never wrested pricing power from the miners. Indeed the monopoly on ore import licensing passed pricing power to a small number of profiteering trading houses. Second, scrapping it now probably is a part of Chinese preparations for the iron ore glut. Sources of supply are decentralising so liberalising traders in an environment of abundance limits the potential for price manipulation.
