SINGAPORE, Nov 7: Spot iron ore prices rose to their highest level since early September, boosted by Chinese mills opting for forward imported cargoes as tight domestic funding makes it harder to secure prompt supplies at ports.
Iron ore, China’s top import commodity by volume, has recovered nearly 25 percent since falling to near eight-month lows of around $110 in May as steel prices stabilised amid signs of a mending Chinese economy.
Chinese buyers have to pay cash upfront for purchases of iron ore stockpiled at the country’s ports, while they can take forward seaborne cargoes with letters of credit that they don’t need to immediately settle, traders said.
‘Most of the Chinese banks have already achieved their target lending by this time of the year so they’re not keen on approving more loans especially for the steel industry,’ said a Shanghai-based iron ore trader.
‘If you take a cargo for early December, you only need to pay one to two months later.’
China has vowed to cut off credit to force consolidation in industries plagued by overcapacity, including steel, aiming to end the economy’s dependence on investment funded by cheap debt.
A trader at Rizhao city in China’s eastern Shandong province said he has 200,000 tonnes of iron ore at ports that he was trying to sell at around 850 yuan per tonne, lower than the average cost of 880 yuan, amid slow demand.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> for immediate delivery to China rose 0.2 percent to $137.10 a tonne on Wednesday, gaining for a fifth day in a row and matching a level last seen on Sept. 5, according to data compiled by Steel Index.
At the Dalian Commodity Exchange, the most-traded iron ore for delivery in May was little changed at 944 yuan ($150) a tonne by 0312 GMT, including value-added tax and port charges.
The tight cashflow for Chinese mills may extend to the end of the year, which could lend support to iron ore prices, traders said.
Firm steel prices were also aiding appetite for iron ore, but limited price gains could soon curb demand for the raw material.
‘At the moment, mills are probably using iron ore they bought last month at around $130-$132 and they are already making very small margins, so they could face huge losses if there are further increases in iron ore prices,’ said the Shanghai trader.
The most-active May rebar on the Shanghai Futures Exchange was up 0.4 percent at 3,670 yuan a tonne, but off a near three-week high of 3,692 yuan reached on Tuesday.
(agencies)
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