China becomes import-dependent for iron ore amid decreasing prices

In March 5, prices for 62 percent Fe content iron ore for delivery to the Chinese port of Qingdao had declined below to their lowest level in approximately six years at $59,75/mt CFR, following the government statement in which China’s national economic growth target for 2015 had been lowered to seven percent, the lowest level since 2009 and more environmental protection measures had been announced to be applied this year. The decreasing of prices has come as a big surprise to the global market, while also arousing curiosity whether this downtrend would continue or not. During this week, prices for 62 percent Fe content iron ore for delivery to the Chinese port of Qingdao have continued its downtrend during this week and ranged at $57-58/mt CFR.

The continuous downtrend of iron ore prices exerts pressure on ore mills which have high production costs. In 2014, many Chinese ore mills, which had below 300,000 mt of annual production capacity, had to halt production and yield their market share to bigger producers such as Brazilian Vale and Australian BHP Billiton. The situation makes China, which is the biggest ore importer, more dependent on imported iron ore. In 2014, China’s iron ore imports have increased by 13.8 percent year on year to 933 million mt, which reveals that country’s iron ore imports increases when the prices move on a downtrend.

Meanwhile, despite the continuation of the downtrend in iron ore prices and the economic constriction in China, Australian iron ore producers BHP Billiton and Rio Tinto, two of the four biggest producers in the world, have decided to extend their production in Pilbara region. Even this decision is considered to be a “suicide” among some market players amid the negative economic outlook and falling prices, the producers believe that their investments will give results since they are currently working on decreasing their production costs. There is no doubt that increased iron ore output from two iron ore producers will accelerate the oversupply problem in global iron ore markets and increase the downward pressure on iron ore prices in the coming days.

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