China projects cheaper iron ore for remainder of 2005
Monday's agreement between
India and
China to expand their economic ties coupled with
BHP's retreat from seeking a
freight premium on raw material shipments to
China set the stage for falling
iron ore prices in
China.
The
China Metallurgy and Mining Enterprises Association, which includes many of
China's major steelmakers, announced that global
iron ore prices would also begin to decrease in June as several of the mining companies' new capacity expansions began adding to aggregate output.
For instance,
Brazil's CVRD plans to better 2004's
production of 210 million tons of
iron ore by nearly 20 million tons this year.
BHP Billiton increased its
production 35% to 110 million in 2004. The company intends to increase it another 30% this year. The other major producer,
Rio Tinto, aims to increase its
production to 171 million tons by the end of 2005.
On the other hand, the Chinese domestic market continues to see piles of
iron ore waiting for buyers in the ports. Beijing introduced an import licensing system in March in an effort to cut down on blind imports and ease congestion at the nation's ports. In addition, Beijing's decision to annul the 13% tax rebate on steel
billet and ingot exports means the
iron ore demand will take a beating. An abundance of stock coupled with waning demand means that prices should continue on the decline for the time being.
Last year, the prices of major global
iron ore producers were around $40. At the same time, many small traders in
China were buying Indian
iron ore in the $100 - 120 price range in the spot market. Last week, however, the prices of
iron ore imported from
India dropped from $97 to $85.
The local
iron ore prices vary between
$67 (Sichuan) and $114 (Shangdon). Today, Tangshan Jianlong reduced its price $3.62 per ton to $89.41 per ton C&F ex-fac including taxes.