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Iron ore: Environmental curbs depress demand, lower prices on week

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SHANGHAI (Scrap Register): In the week to Friday March 8, lower demand from steelmakers on air pollution alerts, together with stable seaborne arrivals continued to depress iron ore prices.

Prices of iron ore are expected to receive a boost in April as demand from steel mills recovers after environmental restrictions and political meetings, and as Vale dam accident affects Brazilian ore supplies.

Greater arrivals grew iron ore stocks at major Chinese ports last week. SMM learned that more deliveries departed Australian ports at the end of February, and the ports maintained high levels of weekly shipment above 15 million mt as of March 8. Though cargoes leaving Brazilian ports dipped at the end of last month, weekly shipments from ports stood at regular levels.

As of Friday March 8, iron ore stocks across 35 Chinese ports grew 2.24 million mt from a week ago to 135.81 million mt, SMM data showed. Daily average deliveries from ports decreased 271,000 mt week on week to 2.42 million mt last week as cities of Tangshan and Wuan in Hebei province extended controls on steel production to improve air quality.

Restrictions were scheduled on March 1-31. Jiangsu province issued a smog alert for heavy air pollution on Wednesday March 6. Qinhuangdao of Hebei also launched the most-severe red alert for smog on Friday March 8, which required local steel plants to cut capacity of sintering machines, shaft furnaces, and blast furnaces by 30%.

Profits will drive steel mills to step up operation, and this will grow demand for iron ore in the short term. As of Friday March 8, profits of rebar exceeded 570 yuan/mt, and profits of hot-rolled coil stood higher than 500 yuan/mt, SMM assessed based on seaborne iron ore prices of $84/mt.

Weak prices of iron ore lowered production costs for blast furnaces, compared with EAFs. This will also prompt steelmakers to raise the proportion of iron ore as raw materials.

At some small mills that produce with blast furnaces, costs of rebar were assessed at 3,135 yuan/mt including tax. This compared with costs of 3,861 yuan/mt for EAFs, based on steel scrap prices of 2,400 yuan/mt with tax.

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