From the AFR this afternoon comes news that Chinese steel mills have been re-selling iron ore bought under long-term contracts into the spot market, helping to explain why spot prices are at a five month low, 20% below their 2013 peak:
China’s steel producers are selling some iron ore cargoes back into the market, cutting inventories to manage costs as slow demand for steel in the world’s top consumer keeps profit margins under pressure.
Over the past two weeks, traders estimate that Chinese steel mills have resold 2 million to 3 million tonnes of cargoes bought under long-term contracts from miners into the spot market.
The sales have boosted available spot supplies, helping drive down prices to the lowest level for the year, and suggest Chinese mills may soon cut steel output as a slower-than-expected economic recovery dampens demand.
“It’s very clear that they are potentially looking at some short-term production cuts which is why they are trying to reduce their incoming inventory,” said a physical iron ore trader in Hong Kong who has seen mills offering cargoes due for delivery in June and onwards…
