'Frozen' China iron ore stocks support prices despite mounting supply
By Amy Lv and Tony Munroe
BEIJING/SINGAPORE, July 5 (Reuters) -Iron ore prices in top consumer China have held unexpectedly resilient despite rising portside stocks, with some cargo owners reluctant to sell their holdings at a loss, analysts and traders said.
Bears built positions betting on a steep price fall triggered by growing stockpiles and slow summer demand. However, prices of the key steelmaking ingredient have instead jumped above $110 per metric ton, after falling towardthe psychologically significant $100-level in late June.
Iron ore's portside supply hit a more-than two-year high of 148 million tons at end-June. This is equal to around 13%of total imports in 2023 and up 27.6% from the beginning of the year, according to information provider Steelhome and China Customs.
"High stocks hinder a price rally but they are not necessarily drivers for a price slump," said Cheng Peng, a Beijing-based analyst at Sinosteel Futures.
That is due partly to cargoes that are effectively untradeable as owners sit on their stocks hoping prices improve, said traders and analysts, some of whom estimate that such "frozen" stocks account for 10% to 15% of the total.
"Some cargoes bought at high prices were 'locked' and became illiquid in the spot market following price falls so far this year, as selling them at the current prices will incur loss," said Chu Xinli, a Shanghai-based analyst at China Futures.
The holding tactic indicates that cargo owners are optimistic about the longer-term market outlook, analysts and traders said.
"We currently do not worry much about the market as every day there are mills coming over for procurement, and we think July (prices) should be better than June," said a trader in Tangshan, China's top steelmaking hub.
"Steelmakers are keeping low inventories at plants, with the average level almost 20 million tons lower than the level seen years ago, and this means many more stocks are becoming visible now even when there is no big change in the total."
Also, some cargoes were "locked" as owners held off selling after making losses on their hedging positions in the futures market, said analysts.
However, the 'frozen' stocks could prove an accelerant if prices fall and cash-hungry cargo holders rush to sell, even at a loss, said analysts and traders.
Ore prices are also underpinned by robust near-term demand and hopes Beijing will unveil more stimulus measures during the upcoming third plenum, a key meeting, with prices likely to fall if stimulus measures disappoint.
Also, rising ore prices are squeezing margins for steelmakers, which could prompt production cuts if losses widen, reducing ore demand and hitting prices.
Reporting by Amy Lv in Beijing and Tony Munroe in Singapore; Editing by Janane Venkatraman
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