Daily iron ore price update (supply gusher)

Reuters has the texture:

“Demand is pretty good, but on the supply side there’s a little bit of change in the momentum,” said Helen Lau, mining and metals analyst at Argonaut Securities in Hong Kong.

The market seems to have taken a pause, she said, following the sustained rally this year that had pushed the Dalian iron ore to a record high of 924.50 yuan a tonne on Tuesday.

“A little bit of a change”? You don’t say. Yesterday we got Port Hedland chucking out ore at a rate 42mt above last year if sustained for H2. Today there is Anglo:

Minas Rio’s iron ore production climbed to 5.9 million tonnes. Anglo American restarted operations there in December after receiving regulatory approval to step up production following a prolonged outage because of a leak.

And:

Kumba noted first-half sales were up 1% to 21.3-million tons year on year, with an improved service provided by railway operator Transnet linking the Sishen and Kolomela mines in the Northern Cape to the port of Saldanha on SA’s west coast.

Then there is this:

According to data sourced from the Indian Ports Association, outward bound iron-ore traffic, including pellets, was up 15.33% during April to June, compared with the corresponding period in the previous financial year, at 12.188-million tons.

…aggregating traders based in the eastern state of Odisha point out that tightening global supplies of iron-ore in the wake of the tailings dam breach at Vale’s Brazilian mines, cyclone impact in Australia and global resource majors’ inability to ramp up production to ensure higher shipments to steel mills, have led to low grade Indian iron-ore fines (iron content 58%, but lower than 62%) of high alumina content finding large volume takers, particularly among Chinese steel mills facing higher grade raw material supply issues.

The traders said that generally low grade, high alumina content iron-ore fines do not find large volume overseas buyers and as a result most local miners carry large pithead stocks estimated to have mounted to levels of around 150-million tons early this year, with 80% of this stock in just the two states of Odisha and Jharkhand. But following the squeeze in global supplies and a rally in international prices, such stockpiles of low grade, high alumina content fines have fallen by about 30% over the past two months with both aggregating traders and miner-exporters successfully booking large volume contracts with traders representing Chinese steel mills.

…So much so that even State-run trading firm, MMTC Limited, has decided to enter into exports of low grade fines. It has called for empanelment of local miners to aggregate low grade fines volumes for export through the eastern Indian ports of Paradip, Vishkhapatnam, Haldia and Gopalpur.

The price rally in iron-ore prices is offering additional margin realizations as the export tax on iron-ore fines with iron content below 58% is nil against a tax of 30% in the case of lumps and fines of higher iron content.

And this:

Vessel-tracking and port data compiled by Refinitiv show Brazil exported 30.34 million tonnes in June, the most in a month since December’s 35.96.

Shipments for July are tracking at about 1 million tonnes per day, suggesting June’s pace is at least being maintained.

However, Brazil’s exports traditionally pick up in the second half of the year and it will be key to see if the country can get back to levels closer to 33-34 million tonnes per month.

Not to mention this:

Shipping brokers in Europe and Asia said the Brazilian mines operated by Brazil-based producer Vale SA are pumping out iron ore after a series of fatal accidents kept sites closed for months. Demand from China, the world’s biggest commodities importer, remains brisk, they said.

“Whilst Pacific activity is steady but moderate, Vale’s big-style comeback on the Brazil/China run combined with markedly increasing trans-Atlantic volumes make up the main driver, and there is at moment for all practical purposes a tonnage shortage for early stems ex Brazil,” Norwegian broker Fearnleys said in a report.

The company said that because a number of ships are in dry dock for maintenance, “the following weeks/months are expected to see present climate maintained and further strengthened.”

A broker in Singapore said capesize vessels, the biggest dry-bulk ships, now go for more than $30,000 a day on the Brazil-to-China voyage, up from less than $10,000 a day in recent months. Depending on the route, some of the biggest vessels can command up to $60,000 a day, he said.

Star Bulk Carriers President Hamish Norton said he expects “50 days of almost guaranteed high rates while the Brazilians ramp up their production.”

Chinese steel output always fades in H2 and iron ore imports fall heavily in Q3. All this new supply is arriving right into that gap. By my calculations, the Vale/RIO gap, which is 60mt after Brucutu returns has already been filled by:

  • India and China adding 10-20mt;
  • Pilbara adding 30-40mt for H2 alone which could be doubled if annualised;
  • Brazil adding 10mt.

Demand is nowhere near as good as everyone is making out, either. Indeed, Chinese iron ore imports have been falling, long before these supply issues, thanks to the rise of scrap inputs. Let’s just peg it at stable year on year for H2. By my estimate that should have the underlying iron ore price at $60-7o if supply were balanced.

Chinese inventories are depleted and apparent demand may be sustained for a while as it rebuilds. But as Vale brings back more volumes in H2 what follows is a market share battle. On any time frame beyond your nose, this market is primed to pop.

To the charts:

Everything weak and its going to get weaker.

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