Iron ore dips as portside inventory builds, demand expected to pick up

SINGAPORE: Dalian iron ore futures fell on Friday, as China’s portside iron ore inventories accumulate towards the end of the pre-Lunar New Year restocking window, though demand for feedstock is expected to pick up.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) traded 0.32% lower at 788.5 yuan ($113.46) a metric ton, as of 0326 GMT.

The contract has lost 0.38% this week, and is on track to decline for a second straight week.

The benchmark March iron ore on the Singapore Exchange was 0.79% lower at $103.95 a ton, and declined 0.84% this week.

China’s portside iron ore inventories continue to accumulate, but transaction volumes have been sluggish, according to a note from the Shanghai Metals Market (SMM).

Coarse fines saw a significant inventory buildup, while fine ore, lump ore and pellets experienced destocking, the note added. The recent bullish run for commodities and precious metals lent support to ferrous metal prices, says Chinese broker Everbright Futures.

With 12 trading days left till the Chinese Lunar New Year, the iron ore restocking window would be nearing its end, providing limited upside potential, said chief steel analyst at Shanghai Steel Union Wang Jianhua in a note. Forty-four independent electric-arc-furnaces (EAF) will be shutting down from February 1-8 for maintenance, according to a Mysteel survey.

Currently, EAF accounts for around 10% of China’s steel output, while blast furnaces account for the other 90%, according to Mysteel.

However, blast furnace output is expected to increase as more steel mills resume production next week after planned maintenance, supporting demand for feedstock. Other steelmaking ingredients on the DCE gained, with coking coal and coke up 1.01% and 0.97%, respectively.

Steel benchmarks on the Shanghai Futures Exchange lost ground. Rebar shed 0.54%, hot-rolled coil lost 0.36%, wire rod fell 0.06% and stainless steel dipped 2.28%.