TRADE REVIEW: Asian iron ore could see supply overhang in Q4 amid weak demand

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Asian iron ore prices could expect slight relief in the final quarter of 2024 despite a fast-accumulating port stock inventory, on positive stimulus from the Chinese government toward the end of a third quarter that saw poor downstream steel demand weighing on iron ore prices.

The Platts Iron Ore Index, or IODEX, averaged $99.7/dry mt CFR North China in Q3, down 10.85% on the quarter, reaching a 23-month low on Sept. 23 at $89.35/dmt, S&P Global Commodity Insights data showed, as weak steel margins from the observed changes in the Chinese national standards for rebars weighed on the market despite overall lower raw material costs.

With the support from the flurry of macroeconomic releases by the Chinese government prior to end-Q3, IODEX rebounded to the $100/dmt mark Sept. 27, Commodity Insights data showed.

However, analysts at Commodity Insights forecast it to dip to an average $98/dmt CFR China in Q4 and the overall 2024 average to be just under $109/dmt.

Low-grade materials popular amid poorer blends

Market participants expect steelmakers to continue pivoting toward lower iron content and non-mainstream fines if downstream demand does not pick up.

Q3 saw steel margins sliding further into negative territory despite the price of medium-grade fines softening.

Steelmakers have reportedly adjusted sinter feed blending ratios to achieve average iron content levels of 55%-57%, market participants said.

Increased demand for low iron content reflected in the higher spot volumes traded in Q3, when low iron-content and non-mainstream fines accounted for approximately 22.1% of total trades, up 17% on the quarter, Commodity Insights data showed.

Reliance on low iron-content cargoes increased in Q3, leading to a narrowing 62/58 spread -- indicating a stronger appetite for low- over medium-grade fines as sintering feedstock.

BHP’s Jinbao fines, which typically carries Fe content of 58%-59%, saw higher volumes in Q3 with eight direct cargo sales following its noted improvement in Fe content.

Demand for Indian low-grade fines also rose as tradable levels in the market were heard at a 17% discount against the IODEX in September, compared to tradable discount levels heard at 23% in early July.

Similarly, discounts against the Platts IODEX for FMG’s flagship brands SSF and FBF remained stable largely throughout the quarter at 15% and 10.25%, respectively, before narrowing to 13.25% and 9% in September, when iron ore prices were averaging in the low $90/dmt levels.

Australian miner Roy Hill also first offered their MB Fines product on international trading platforms July 18, with two more trades concluded Aug. 22 and again on Sept. 26.

Meanwhile, Brazilian miner Vale saw increased volumes of cargoes on the quarter, shipping out 65 MMt, up from the 50.9 MMt in Q2.

However, data from Commodity Insights showed Vale’s non-mainstream fines made up around 31.8% of the total recorded trades as compared to 25.7% in Q2, showing the market’s increasing preference for non-mainstream material.

Conversely at the Chinese ports, August saw the market spread for 62/58 grade fines begin to steeply narrow across the quarter.

Lump prices plunge on oversupply

Outlook for direct feed seaborne lump remains uncertain for Q4, as a demand rebound weighs on the implementations of seasonal winterrestriction policies, with many market sources expecting little support for lump due to fewer mandatory restrictions observed in previous years.

Lump material prices took a tumble during the last leg of Q3, though noting a 29.84% increase from the Q2 average of 12.4 cents/dmtu. Lump premiums averaged at 16.1 cents/dmtu CFR North China in Q3, dipping to a 4-month low of 10.8 cents/dmtu on Sept. 13.

Withered outlooks and low procurement prospects saw higher reselling seaborne lump interests in August, with most of it coloaded with their fines counterparts.

Observed volumes of primary spot Newman Blend Lump and Pilbara Blend Lump cargoes sold by Australian miners BHP and Rio Tinto were at 44.5% in Q3, down from 61.9% in Q2, data from Commodity Insights showed.

Mainstream brands such as PBL and NBL only accounted for 63.4% of the total spot seaborne lump volumes in Q3, down from 71.7% in Q2. As the supply glut of lump cargoes weighed on premiums, the initial spread seen between the two brands was also removed.

The lump market also saw demand shifts toward non-mainstream and lower-Fe content lump materials, with more observed trades for brands such as Lump Ore Non-Screened, Rio Tinto X-Lump, Supplementary Product 10 Lump, NSPS and Newman Blend Lump Unscreened due to better cost effectiveness.

With portside lump inventory levels seeing the least decline among all products for the quarter, market sources said average lump utilization rates in mills' blast furnace have fallen below the 10% threshold.

New blending patterns, new demand pool

Commodity Insights has seen a focus on the Chinese imported concentrates market, with it being an adjacent price marker for increasing Middle Eastern demand, given multiple new projects and investments in recent years.

With many Chinese steel mills lowering their furnace iron grades to cut costs, demand for low silica imported Brazilian and Chilean concentrates rose to complement blast furnace high low silica blending.

Moreover, Chinese mills began to find favorable cost-effectiveness results from magnetite seaborne concentrates due to their multi-sintering and pelletizing uses, resulting in a premium over similarly graded hematite concentrates.