A marked shift in preference towards current month pricing for iron ore cargoes over those priced on a forward month basis has emerged ahead of the Lunar New Year holidays, market sources said Feb. 4.
The spot iron ore fines market usually trades on a forward month basis due to the liquidity and reselling opportunities available in a backwardation structure.
However, amid a sharp fall in current month seaborne iron ore prices, market sources said there was a resurgence in buying interest given the reselling margins in the portside market, where equivalent prices remain above seaborne levels.
The Platts 62% IODEX was assessed at $152.05/dmt Feb. 3, down $6/dmt from Jan. 29. Prices at ports in east and north China were assessed higher on an import parity basis at $157.16/dmt FOT Feb. 3, down $5.24/dmt from Jan. 29.
There is speculative buying interest in securing cargoes that will arrive right after the Lunar New Year holidays to capitalize on reselling margins, an international trader said. In addition, the week-long holiday will result in less volatility in February pricing, reducing exposure to forward timing risk, the source added.
Tightening availability of mainstream fines at ports is expected to support portside price levels and, in turn, stronger front-loaded demand, a Chinese trader said.
Expectations of strong price volatility for March pricing basis was also seen as a key factor in limiting speculative buying interest for forward month cargoes.
While the upcoming holiday reduces price exposure risk for February pricing, it increases it for March pricing. As a result, a recovery in demand will most likely emerge after the festive period, another trader said.
There were positive sentiments toward March cargoes given forecasts of end-user restocking needs and spring weather encouraging high steel production levels, a source said.
Although traders were seen holding back from taking speculative positions for March pricing cargoes, end-user demand for March cargoes on a fixed price basis was observed given the current backwardated structure.
Some end-users said March pricing levels were being temporarily suppressed by front-loaded demand for February pricing and they had fixed-price buying interest as they felt prices generally had bottomed out, a procurement source said. If seaborne levels were to surge past portside prices after the holiday, they would have the option to resell their cargoes and procure from the ports instead, the source added.
