IRON ORE RISES AS CHINA SIGNALS PORT-FEE CUTS AND MOVES TO COOL STOCKPILING

IRON ORE FUTURES ROSE ON TUESDAY, DRIVEN BY EXPECTATIONS THAT CHINA MAY LOWER PORT FEES, A MOVE THAT COULD DISCOURAGE PROLONGED STOCKPILING AND INCREASE INVENTORY TURNOVER. TRADERS INTERPRET THE PROPOSAL AS A POTENTIAL TIGHTENING OF SPOT SUPPLY DURING REPLENISHMENT PERIODS.

THE MOST TRADED JANUARY IRON ORE CONTRACT ON THE DALIAN COMMODITY EXCHANGE ADVANCED 0.51 PERCENT, REACHING 794 YUAN PER TON, THE EQUIVALENT OF 111.90 DOLLARS. IN SINGAPORE, THE DECEMBER BENCHMARK CONTRACT ROSE 0.59 PERCENT TO 105.65 DOLLARS PER TON, EXTENDING THE GAINS RECORDED IN RECENT SESSIONS.

THE CHINESE PROPOSAL CALLS FOR A REDUCTION IN PORT FEES FOR STATE OWNED COMPANIES THAT KEEP CARGOES ON SITE FOR LESS THAN 30 DAYS. ANALYSTS AT ANZ BELIEVE THE MEASURE SHOULD REDUCE THE INCENTIVE FOR LONG TERM STOCKPILING, ACCELERATE INVENTORY TURNOVER, AND TIGHTEN SHORT TERM SUPPLY, WHICH WOULD HELP SUPPORT SPOT PRICES.

GALAXY FUTURES ARGUES THAT PRICE SUPPORT ALSO HAS A STRUCTURAL COMPONENT RELATED TO A SHORTAGE OF PILBARA BLEND FINES, A KEY AUSTRALIAN BENCHMARK RAW MATERIAL. THIS SCARCITY HAS HELPED SUPPORT STEEL PRICES IN THE SHORT TERM. THE BROKERAGE NOTES, HOWEVER, THAT DOMESTIC STEEL DEMAND IS LIKELY TO DECLINE QUICKLY, WHICH COULD PRESSURE IRON ORE PRICES OVER THE MEDIUM TERM.

THE CHINA IRON AND STEEL ASSOCIATION STATES THAT ADDITIONAL PRESSURES REMAIN IN PLACE. WITH THE ARRIVAL OF WINTER, DEMAND IS EXPECTED TO COOL, AND FINISHED STEEL INVENTORIES REMAIN HIGH, LIMITING PRICE REBOUNDS.

MARKET SENTIMENT ALSO IMPROVED AFTER COMMENTS FROM UNITED STATES PRESIDENT DONALD TRUMP, WHO SAID RELATIONS WITH CHINA ARE EXTREMELY STRONG FOLLOWING A CALL WITH XI JINPING. THE CONVERSATION TOOK PLACE WEEKS AFTER A MEETING IN SOUTH KOREA WHERE BOTH LEADERS AGREED TO ADVANCE WORK ON A TRADE AGREEMENT THAT HAS NOT YET BEEN FINALIZED.

THE COMBINATION OF LOGISTICS INCENTIVES, SUPPLY TIGHTNESS, MIXED DEMAND SIGNALS, AND GEOPOLITICAL DEVELOPMENTS CONTINUES TO KEEP THE IRON ORE MARKET VOLATILE WITH A POSITIVE SHORT TERM BIAS.