China's iron ore importers need to keep a close eye on the country's steel mills as they mull output cuts and shutdowns amid a year-end credit crunch, the China Iron and Steel Association said Thursday.
Prices of iron ore derivatives including futures, swaps and options have seen signs of recovery recently due to expectations of a better 2016 for China's steel sector, but the situation was unpredictable, CISA said in its latest iron ore monthly report.
Importers need to be "alert to price volatility with possible steel production cuts or halts, or retrenchments among Chinese mills, in the near term, with their failure to secure financing or credit issuance from banks towards the year end," CISA said in the report.
Iron ore imports in December are expected to be lower than in November due to tightening cash flow at most Chinese steel mills, market sources said. Platts IODEX fell below $40/dry mt CFR North China December 4 for the first time since assessments began in 2008, and hit a new record low at $38.50/dmt Tuesday, before edging up 65 cents/dmt to $39.15/dry mt CFR North China Wednesday.
Iron ore market sources said a sustained price rebound was unlikely as Chinese steel mills struggled for cash flow and kept their iron ore inventories as low as possible.
The market had been less pessimistic in November, when iron ore prices were hovering at a then year-to-date low of $40-$45/dmt CFR North China and some enthusiasm for restocking emerged, CISA's analysis confirmed.
The number of Chinese companies importing iron ore rose to 545 in November from 527 in October, despite most mills operating at a loss, the analysis showed.
The total volume of China's iron ore imports rose 15.1% month on month to 105.6 million mt in November, with Australia and Brazil's combined share rising to 86% of it from 84% the month before, CISA said.
Term cargo arrivals from Australia surged 25.4% month on month to 61.9 million mt in November and from Brazil rose 10.4% on month to 19.6 million mt.
Australia's supply of medium and lower grades ores with a ferrous content of 55-63% was up 11.1% month on month at 50.8 million mt in November, comprising 82% of the total, while Brazil supplied 11.4 million mt of higher grade material of 63% Fe and above, up 46.8% month on month and comprising 58% of its total shipments into China.
