Iron ore goes to the inventory "main theme" under the company's difficult dance

Iron ore port stocks hit new highs, iron ore prices dipped sharply in a single month, and a series of changes pushed the domestic imported iron ore market to the forefront. In order to find out the latest supply and demand trends and future trends in the iron ore market, the author visited the Rizhao Port, the largest port of iron ore in China. High-priced stocks stranded in Hong Kong Rizhao Port, located in the southeastern part of Shandong Province, on the coast of the Yellow Sea, with the 2010 iron ore throughput of 130 million tons continues to sit firmly at the top of the domestic iron ore port. Walking into the port area, the iron ore terminal is still busy, and port workers are unloading cargo for a 200,000-tonne ore ship. Behind the deep red iron ore piled up in the mountains, all over the port yard, the air is filled with a special mineral powder taste. “Since the port, iron ore stocks have increased to some extent since September, and the inventory of the Laoshan Port Area has totaled around 17 million tons. There are also many ships arriving in Hong Kong these two days, and large and small ore ships are under 40. There are many." Yang Guang, the production safety department of Rizhao Port, told the author. It is understood that since 2008, with the rise of international iron ore prices, the inventory of imported iron ore in domestic ports has continued to rise. Recently, the China Iron and Steel Association survey of iron ore stocks in major ports across the country shows that domestic iron ore pressure inventory exceeds 98 million tons, plus various types of hidden inventory. At present, the total inventory of iron ore exceeds 100 million tons. The cargo ship pressure is not new to the iron ore market. On the one hand, there are few large berths in domestic ports, and it is difficult to cope with short-term centralized imports. On the other hand, the capacity of the yard is limited. Once the inventory is stranded, the loading and unloading speed of cargo ships will inevitably slow down. Yu Huifang, secretary of the board of directors of Rizhao Port, said that in October, the price of imported iron ore dive and the sea freight rate was very low. At this stage, it is also the traditional “winter supplement” season of steel mills, which has attracted some domestic steel mills and traders to concentrate on purchasing. However, the steel mills have insufficient willingness to pick up the goods, which has caused the inventory turnover of the yard to slow down. Under the joint action, there have been some pressures in the port. "At present, there are iron ore stocks in the port area and traders. Steel mills account for the majority, mainly in the high-priced stocks in the previous period." Yu Huifang said. The previous round of iron ore prices plummeted, making high-priced stocks now a hot potato. According to Baichuan Information, at the end of October, the price of 63.5 Thai CFR China main port was once down to US$129/ton, which was 30% lower than the September price. Although iron ore prices have rebounded recently, the downward trend has not changed. Destocking has become the main theme of the entire industry. How difficult is it to go to stock However, downstream demand is sluggish and it is difficult to go to stock. As we all know, iron ore is mainly used for steel smelting, and steel terminal consumption involves real estate, automobiles and other related industries. The downturn in the terminal industry is currently being pushed upstream through the industry chain. According to the National Bureau of Statistics, in October 2011, the cumulative amount of domestic real estate development investment increased by 31.1% year-on-year, and the growth rate dropped significantly from the 33.6% level in July. In terms of automobiles, the cumulative domestic production growth rate in October was only 4.2%, which was more than half of the growth rate at the beginning of the year. “The demand is not good, the price is falling, the steel mill can only cut production.” Yang Nengzhong, vice president of Chuanwei Group, said that the steel industry's production cuts have already started in October. Most companies are in a state of low profit or loss, and it is imperative to digest high-priced stocks. Su Yanbo, an analyst at Baichuan Information Metallurgy Department, said that the price of steel in the previous period has fallen sharply, the market has continued to slump, and the profitability of steel mills has been poor, but they have chosen to cut production and insured prices. The theoretical cost of producing steel billets in steel mills is around 4,000 yuan / ton, but the current billet market price is about 3,800 yuan / ton. It can be seen that the profitability of steel mills has indeed fallen sharply. According to the China Steel Association, in the first ten days of November, the daily average output of crude steel in the country was 1,664,100 tons, a decrease of 52,900 tons or 3.08% from the previous month, the lowest in the year. From the terminal to the steel, and then through the steel production, the final impact on the consumption of iron ore raw materials, resulting in a significant decline in iron ore demand. "The original two bowls of rice, now eat half a bowl of rice, at least let the stove not turn off." A large iron ore trader in Rizhao introduced some of the recent practices of steel mills, because steel mill production is calculated based on the procurement cost of materials. In order not to lose money on the books, some steel mills put the high-priced agreement mines in the port and switched to imported low-priced trade mines. As demand fell, some of the low-cost mines were forced to stay in the port, so the industry's iron ore stocks have recently remained high. Chen Bo, an analyst at CSI Futures, said that because iron ore imports require a lot of money, the steel mill's agreement mining business usually has the participation of large traders, which is what the industry calls the “tray maker” concept. Large traders provide financial access to iron ore imports from steel mills, while small and medium-sized traders act as agents and price speculators for trade and mining, and some will also involve letter of credit financing. "Steel prices have not been able to go up, steel mills have very few goods or simply do not enter. We have not done a single month." Rizhao Huanuo trade related person in charge said that the current overall inventory of traders is relatively large, Business is getting harder and harder to do. The rebound in the price of minerals is difficult to continue. Intriguingly, in the environment of continued downturn in the downstream, iron ore prices have rebounded in the first half of November, and some minerals rebounded by nearly 20%. However, for this oversold rebound, most of the industry is not optimistic. "The recent increase in mine prices has many reasons. On the one hand, some steel mills have insufficient stocks of stocks and have entered the market to replenish stocks. There are also rumors that some traders are speculating and pushing up prices. But most of the opinions are that this wave of growth continues. November," Su Yanbo said. Chen Bo said that at this stage, steel mills are more pessimistic about the market outlook, and the reduction in demand before the first half of next year is a foregone conclusion. The latter market will also face inventory pressure, and the probability of iron ore price volatility is higher. Yu Huifang also believes that it is difficult to have a substantial recovery in iron ore prices within half a year. “Steel is mostly used in the automobile, shipbuilding and civil construction industries. Now the real economy can't get up, and the consumption of steel for affordable housing is limited. The demand is exactly the same as the previous large-scale construction of real estate. Together with the foundation of railways and highways. The construction of facilities has been compressed, and the overall demand has dropped greatly.” In fact, from the dynamic changes in the global supply and demand pattern, it seems that it does not support the iron ore price to rise again. The slowdown in demand in China has caused the market to renew the call for the turning point of iron ore supply and demand. The "Twelfth Five-Year Development Plan for the Iron and Steel Industry" released in early November pointed out that by 2015, the iron and steel industry will strive to basically establish a profit-sharing system for iron ore, coal and other steel industries, and the self-sufficiency rate of domestic iron ore will remain at 45. More than %, foreign iron ore resources control accounted for more than 50% of imported iron ore. At the end of last month, Ma Guoqiang, general manager of Baosteel Co., Ltd. said at the performance report of the third quarter report that the spot price of iron ore dropped significantly in October this year, and the price determined by the supply and demand relationship returned. From the current international environment and domestic policy orientation, the turning point of iron ore prices has emerged. He predicted that at the end of 2012 or 2013, the iron ore supply tension will be eased or even reversed.

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