Oslo: Norwegian bank DNB has issued a report on Chinese iron ore in which it warns the current situation is “negative for the dry bulk market” in the short term.
Coming into 2013 the margins held by Chinese steel producers have come “significantly down”, DNB said, to levels not seen since the spring of 2010. Although steel prices have increased, the cost increase from higher iron ore prices has been even higher and hence made inroads in the margins.
Chinese steel inventories have increased significantly in 2013 and the latest recorded data from five days ago shows a reading of 19.2m tonnes, up from 12.1m in December 2012, an increase of 7.1m tonnes.
“Taking steel prices as an indicator of demand changes, we see that the past week has shown weakness as steel prices have decreased. Specifically, rebar has fallen c3% over the last week,” DNB noted.
“All in all we read these observations as negative for the dry bulk market in the short term, but if this leads to a fall in iron ore prices we believe that would be positive for substitution away from domestic iron ore towards more imports,” the bank concluded. [27/02/13]
