Trade Resources Economy The Futures and Swaps Markets Recovered Some Ground

The Futures and Swaps Markets Recovered Some Ground

Despite weak fundamentals and largely negative sentiment, the futures and swaps markets recovered some ground through the day, leading to some support for ore prices.

Platts assessed the 62% Fe Iron Ore Index up 50 cents from Monday at $89.50/dry mt CFR North China.

Early in the day, market sources said steel rebar futures had slipped below the Yuan 3,000/mt mark, bringing about considerable pessimism among industry players.

But as the day went by, there was a recovery in steel rebar and iron ore futures, as well as gains seen in iron ore swaps.

The most actively traded steel rebar October contract in Shanghai last traded at Yuan 3,017/mt ($490.25/mt), up Yuan 17/mt from Monday, and settled at Yuan 3,009/mt, down Yuan 4/mt on the day.

Iron ore futures on the Dalian Commodity Exchange (DCE) also stopped declining Tuesday, climbing just slightly to close at Yuan 667/mt ($108.50/mt), up Yuan 6/mt from Monday, and settled at Yuan 663/mt, up Yuan 2/mt on the day for the most liquid September contract.

Iron ore swaps also strengthened through the day after opening on a weak note. Platts assessed the July 62% Fe IODEX swap at $89.50/dmt CFR North China, up 75 cents/dmt on the day.

Additionally, several market sources said that once prices fell below the $90/dmt level, Chinese end-users felt that the short-term price floor had been reached and had started to replenish stocks.

"Steel production still has not been cut despite the hot weather so mills still need to maintain ore buying levels for steelmaking," a Tangshan-based trader said. "Mills are taking advantage of the current low prices to do some restocking."

"Many buyers are trying to replenish their inventory levels after offloading their term cargoes when the spot prices were doing down," a Singapore-based trader said.

Despite what market participants called "sentiment-driven" gains, most said steel fundamentals were still poor, and this was having a direct negative effect on iron ore demand, with Chinese end-users pulling back from procuring due to wariness of a weaker market to come.

"It's clear that the steel lull season is already here," a Beijing-based trader said, making reference to the hotter summer weather leading to decreased productivity in construction and infrastructure development. "Buying of steel has definitely slowed and this has also led to poorer appetite for iron ore."

A procurement source at a Hebei-based mill said the current supply overhang of iron ore was "pressuring prices down", exacerbated by already-weak steel prices. "The oversupply won't push ore prices lower indefinitely and we'll see a rebound sometime soon, but steel fundamentals are so weak that for now, down is the only way to go."

Additionally, sources also said that the sheer volume of iron ore port stocks in China was diverting a great deal of demand away from the seaborne market, especially given that port stocks were cheaper and there was a great variety of products there for the taking.

"There is such an abundance of cargoes at the Chinese ports -- high grades, medium grades, low grades -- that you know whatever you need can be found there at a lower price," a Chinese trader said. "No buyer is worried about supply these days."

A Zhejiang-based steelmaker concurred.

"These days, any steel mill would turn to port stocks first before considering buying seaborne cargoes," the steelmaker said. "Even though seaborne cargoes are comparatively cheaper than they were before, they still can't beat port stock prices, and there is over 111 million mt of material there at the ports."

Port stocks of 61%-Fe Australian Pilbara Blend fines in several ports in the Shandong region in northern China were heard to have traded at Yuan 590/wmt ($83.50/dmt on an import parity basis) free-on-truck, including Yuan 35/wmt in port charges and 17% VAT.

Meanwhile, the spot price of steel square billet in Tangshan gained Yuan 10/mt on the day to Yuan 2,740/mt ($455.25/mt) ex-stock, a steelmaker in the region said. This was after falling a significant Yuan 40/mt over the weekend Monday.

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Market Gains as Financial Derivatives Push Prices up
Topics: Chemicals