Seaborne iron ore rallied Tuesday as the need to replenish inventories among Chinese mills saw some buyers return to the spot market. Platts assessed the 62%-Fe Iron Ore Index up $1 at $124.50/dry mt CFR North China Tuesday.
However, many said the stronger buying interest witnessed Tuesday was just sporadic purchasing by some mills with low inventories and not necessarily representative of an improvement in steel fundamentals.
This was evident in the steel market where long steel prices have weakened after a one-day rally. The spot price of square billet in Tangshan -- an indicator of steel fundamentals in the key production hub of China -- was Yuan 3,080/mt ($497/mt) ex-stock Tuesday, down Yuan 10/mt from Monday, a Shandong-based mill source said.
Steel rebar futures in Shanghai declined Tuesday, with the most liquid October contract last trading at Yuan 3,590/mt, down Yuan 16/mt on the day, and settling Yuan 24/mt lower from Monday to Yuan 3,595/mt.
Iron ore buying interest seemed to be experiencing a slight pickup in the spot iron ore market, but caution still prevented most bids from edging up closer to offer levels sellers were willing to consider.
"We are getting more buying inquiries from both mills and traders [Tuesday], but the problem is that their bids are still at very low levels," a Shandong-based trader said. "Everyone's still pretty conservative as the market is very uncertain."
A Beijing-based trader said the number of buying inquiries had increased from the previous week, but it "did not mean there were fundamental improvements to the steel and iron ore markets."
Several market sources said that the improvement in buy-side interest was due to the fact that mills had not been actively procuring spot ore for a while now as they kept holding out for prices to fall, but they probably needed to buy now as stocks had already dwindled to sufficiently low levels.
But most sources said the strengthening in spot iron ore prices was not sustainable as it was merely sentiment-driven and temporal, while steel fundamentals had yet to improve.
China's largest privately owned steelmaker, Jiangsu Shagang, Tuesday set its price for 16-25 mm diameter HRB400 rebar at Yuan 3,660/mt ex-works for delivery over the last 10 days of May, down Yuan 50/mt from the previous 10-day period, market sources said.
"We're seeing more and more mills having to cut the selling prices of their products because downstream demand is really poor," a Shanghai-based trader said.
Elsewhere, port stocks of 61%-Fe Australian Pilbara Blend fines in Qingdao, northern China, were heard to have been offered at Yuan 870-880/wmt ($125-126.50/dmt on an import parity basis) free-on-truck, including Yuan 35/wmt in port charges and 17% VAT.
Offer levels were at Yuan 900/wmt heard at Qingdao Friday.
"Port stock levels are aptly going down because steel margins are doing so poorly," a second Shanghai-based trader said. "Directionally, seaborne iron ore also can't be looking at a prolonged uptick because fundamentals have not changed."
Source: Platts