China portside iron ore expands discount to seaborne
9th April 2018
China’s portside prices of mainstream iron ore fines expanded their discount to seaborne cargoes in the first quarter, as port inventories rose to record highs.
The Argus PCX 62pc portside fines discount to Argus ICX 62pc seaborne fines averaged $2.36/t in January-March, compared with a discount of 76¢/t in October-December 2017. The Argus PCX was at a premium of 81¢/t to the ICX in July-September 2017.
The PCX-ICX discount ranged from $1.25-4.35/t in March, $1.25-3.70/t in February and $0.10-3.85/t in January. The PCX was at a premium to the ICX on just three days in the January-March period.
The seaborne equivalent of yuan-denominated portside prices is calculated by assuming 17pc value-added tax and 8pc moisture.
Strong iron ore imports in the first quarter and slower offtake since February have pushed portside stocks to record highs, pressuring portside prices. Imported iron ore stocks were at 163mn t on 31 March, up from the previous high of 159mn t on 28 February. Average iron ore inventories at large and medium-sized mills were 22 days of consumption in March, down from 25 days in February.
But the discount for portside prices has encouraged smaller mills to do the bulk of their iron ore purchases on the portside market. Several large mills are currently offering part of their long-term seaborne contract supplies in the portside markets. These mills are willing to book even a small loss on their sales, as they are confident of buying portside ores at a lower price when needed.
Portside fines are likely to continue to sell at a discount to seaborne fines this month if early trends persist. The PCX was at an average discount of $2.20/t to the ICX in the first three trading days of April. Portside sellers are reluctant to offer sharp discounts on mainstream fines such as PB fines as they are already booking losses of 20-50 yuan/wet metric tonne ($3-8/t) by landing seaborne cargoes and selling them in the yuan-denominated market.
Among the major 62pc mainstream brands tracked by the PCX index, portside BRBF fines moved to a premium to PCX in February after selling at a discount since the assessment was launched in September. BRBF was at a premium of 0.34pc to PCX in February, 1.01pc in March and 2.96pc in the first three trading days of April.
Portside Newman fines traded at a 6pc premium to the PCX in March, the widest since the assessment began. PB fines’ discount to PCX has remained stable at 0.7-0.9pc since September.
The seaborne equivalent of portside SSF fines narrowed its discount to PCX to 41.16pc in March compared with 43.2pc in February. Lower profit margins may have prompted mills to increase purchases of sub-58pc fines to cut costs. And the decision of India’s coastal state of Goa, a key supplier of low-grade fines, to suspend iron ore mining indefinitely from 15 March means SSF fines could see more support in the Chinese market.
PCX seaborne equivalent differential to 62pc ICX $/dmt