With the continuous decline in steel prices, quotations of iron ore imports in China have dropped down over three consecutive months. On June 12, the quotation of Indian iron ore (63.5 percent) stood at $126-128/mt CFR - the first time since February this year that prices of iron ore imports in China have declined to below $130/mt CFR.
The prices of both steel and iron ore in China reached peak levels in the middle of April, with quotations of imported iron ore in the range of $190-193/mt CFR at that time. In comparison, quotations of iron ore imports in China have slid by $65/mt or by one third since then.
Although prices of iron ore in China appear close to the bottom, a wait-and-see attitude continues to prevail in the market. According to some iron ore traders, there is still a great risk of incurring losses given to the continuing uncertainties in the iron ore market.
Despite the decline in iron ore prices, domestic steel mills are unable to benefit from the reduction in production costs. On the one hand, since the decline rate in iron ore prices is smaller than that seen in steel prices, it is hard for the mills to make a profit at present; on the other hand, the larger domestic steel producers which have contracted with the mining giants to purchase iron ore at the quarterly contract prices are unable to purchase the cheaper spot iron ores. In this context, insiders think that Chinese steel producers may again incur losses in the third quarter.
The iron ore contract price for the third quarter between the Chinese mills and the three mining giants is still uncertain. If calculating based on the Q3 contract price reached between Japanese mills and the mines at $147/mt FOB, and also taking into account the new freight rate from Australia to China at $7.3/mt, the CFR price is as high as $154.3/mt, $26-28/mt higher than the current market quotations of Indian iron ore.