Champion Iron Ord Shs T.CIA

RBC Notes

[retiredcf]

March 31, 2022

Bulking Up
Improved demand and supply constraints push iron ore higher

Our view: Iron ore prices strengthened over the last week as steel production restarts in Tangshan, China led to stronger demand for the commodity. Additionally, CRU is reporting supply issues as steel producers in China struggle with transportation constraints. In the met coal market, easing supply concerns have the commodity down sharply (9.5% w/w, plus another 4.4% today). This is due to a combination of continued Russian supply to the seaborne market, which was not as disrupted as market participants initially thought, as well as a dry weather outlook in Australia, which should ease some of the impacts from recent wet weather in the region.

In China, PMI data for March came in soft vs. consensus (49.5 actual vs. 49.8 cons). However, COVID-19 outbreaks in China have led to supportive policy statements in China, which has led to some support for iron ore and steel prices. See here for a SPARC from Analyst Tyler Broda for details.

• Iron ore was up 8.0% w/w to $158.20/dmt CFR China. Iron ore was up this past week as returning steel production was met by slightly lower seaborne exports and logistical constraints, which limited the ability for steel producers to get the commodity. On the demand side, Platts notes that some steel producers in Tangshan have restarted production, which is confirmed by rising BF utilization in China (see below). Additionally, steel producer inventories of iron ore are reportedly low, which has pushed demand for the commodity higher (per Platts). On the supply side, CRU notes that seaborne supply was slightly lower this week, while transportation challenges as a result of lockdowns in China have made it more difficult for steel producers to procure the commodity.

• Met coal was down 9.5% w/w to $534.00/t FOB Australia. Met coal imported into China was up slightly w/w to $440.25/t CFR China. Seaborne met coal prices fell this week on the back of easing supply concerns. According to CRU, exports of met coal from Russia have continued to customers in Europe, Japan, South Korea, India, and China, which has eased concerns of a major disruption to global supply. Additionally, after a couple of months of disruptive wet weather in Australia, expectations are for a dry April, which, combined with rising exports from the country, has eased Australian supply concerns. However, this was partially offset by a temporary shut down at the Moranbah North in Australia after a fatality at the mine. Moranbah North produces ~7Mtpa of coal.

• Thermal Coal prices were down an average of 2.3% w/w. Richards Bay was down the most, falling 4.8% w/w to 225.05/t.

• Chinese steel prices were up an average of 1.4% this past week. Chinese blast furnace utilization increased to 85%, from 82% the prior week (per CRU). In the US, HRC prices rose another 6.1% this past week. US steel utilization fell to 79.4% from 80.2% the prior week (Exhibit 10).

• Chinese steel inventories were mixed this past week. Chinese HRC inventories fell 3.2% w/w while rebar inventories rose 0.3% (Exhibit 11).

• Global steel production in February was 142.7Mt, down 7.9% m/m and down 5.0% y/y (per World Steel Association). On an annualized basis (1.7Bt) this is the lowest production level since April 2020, in part due to the shorter month but also due to much lower output from China, which was down 8.2% m/m and 9.6% y/y as a result of restrictions during New Year holidays and the Winter Olympics.