Vale Puts 10% of Iron Ore in the Red as China Port Stocks Build and Hot Metal Slips

Vale said soaring costs have put roughly 10% of its iron ore production in the red, with rising fuel and shipping expenses squeezing producers as weak Chinese demand and new supply weigh on prices, Mining.com reported on 16 October. Market Pulse Scope's iron ore series, quoted in US dollars per tonne, stood at 90.90 dollars a tonne on 16 October, up just 0.24% on the week but down from 97.51 dollars on 21 September, a decline of about 6.8% over that period. US hot-rolled coil, by contrast, rose 2.96% on the week to 1,356 dollars a tonne, widening the gap between raw material and finished steel.

Chinese port stocks are the clearest sign of a loosening balance. Mysteel data showed iron ore inventories across 47 Chinese ports at 173.6917 million tonnes, up 550,000 tonnes on the week and 6.47 million tonnes above the start of the year, and higher than a year earlier. Arrivals were also heavy: 47-port arrivals reached 25.614 million tonnes in the latest period, up 940,000 tonnes on the week, even though the October weekly average of 25.1455 million tonnes is 3.48 million tonnes below the September average, so the near-term pressure is partly a delivery-timing effect.

Demand is edging down rather than falling off a cliff. Daily hot metal output at 247 sample steel mills was 2.3366 million tonnes, down 18,000 tonnes on the week and 72,900 tonnes year on year, with further declines expected as planned blast furnace outages land. Mills are running with thin margins and have pushed raw material costs lower: two rounds of metallurgical coke procurement cuts took effect during October and mills are keeping coke and iron ore purchases to just-in-time needs, with coke and iron ore stocks held at low-to-medium levels rather than being rebuilt.

The cost side argues against a deep selloff. Market Pulse Scope's thermal coal series is firm at about 150.40 dollars a tonne, and Chinese domestic coal was described as being at a three-year high with little relief in sight in Bloomberg-sourced reporting carried by Mining.com on 12 October. Freight and fuel inflation is the specific pressure Vale flagged, and it is the same cost that is supporting metallurgical coal and, in turn, setting a floor under steelmaking raw materials at a time when finished steel prices in the United States are still rising.

Near term, brokers expect iron ore to stay weak but range-bound. Shanghai Zhongqi Futures said prices are likely to consolidate on the weak side with the key variable being whether hot metal keeps falling, while Mysteel's coking industry review argued that with mills having recovered some margin through two rounds of coke cuts and hot metal still high, the bottom of the complex is relatively well supported. The watch items are the next hot metal print, the pace of blast furnace maintenance and whether 47-port stocks keep building.