China’s iron ore import prices drop to lowest levels of 2008
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Over the past week the Chinese iron ore market has remained on its downward trend on the whole. Due to the continuous increase in iron ore imports, inventories at the ports have again reached relatively high levels, while market prices of imported iron ore have dropped down to the lowest levels of last year, and even lower in the case of Australian ore.
Weekly change (RMB/mt)
Iron ore concentrate
damp base (iron content: 66 percent)
India fine ore
Given the increased iron ore inventories at the ports and the reduced demand from the mills, iron ore importing activities in China have posted a sharp shrinkage in recent days, leading to a continuous slide in the international shipping freight market. By the end of trading on March 26, the Baltic Dry Index (BDI) had declined 121 points week on week to 1,861 points. On March 26, the average freight charge from Brazil to Beilun Port in China was $16.51/mt, down by $0.38/mt compared with the level on March 19. Meanwhile, the average freight rate from Western Australia to Beilun on March 26 was $6.94/mt, slightly up $0.43/mt compared with the rate on March 19. In addition, the freight cost of Indian ore to China's major ports was at $10.07/mt, a slip of $0.47/mt week on week.
Against the background of continuously sliding prices of iron ore in China's domestic market, mills reduced their purchases, leading to poor trading activity in the local iron ore market. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is RMB 520/mt ($76/mt, tax excluded), while the market prices in the northeastern regions are slightly down to the level of RMB 450/mt ($66/mt, damp base/tax excluded). Meanwhile, the prices of 63.5 percent Indian fine ore are at $54/mt FOB, while the CIF price (Tianjin Port) is around $63-65/mt. Additionally, the price quotation of 63.5 percent Indian ore is at the level of RMB 560/mt ($82/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has declined to RMB 580/mt ($85/mt), with the deal price of 65 percent Brazilian fine ore at around RMB 620/mt ($91/mt), down by RMB 20/mt ($3/mt) week on week.
Last week, China's imported ore market continued its weak trading performance, with a minor decline observed in imported ore prices. Indian ore prices have come down close to the level of RMB 530/mt, last year's bottom point. Taking the 2008 VAT reform into consideration, the current prices are generally equal to the lowest price levels of the last year. Meanwhile, import quotations of Australian ore have fallen below the lowest level in 2008, thus significantly affecting market confidence.
China's iron ore imports surged sharply in the first two months of 2009, with February imports rising to 46.74 million mt. As a result, China's iron ore inventory again rose above the level of 65 million mt, exerting steady downward pressure on market prices. At present, Australian ore suppliers are selling spot materials at low levels, with the import price of 62 percent Australian fines now at the level of $60/mt CFR, much lower than the 2008 long-term contract price and the spot price of the same materials at the ports. Affected by the low-price Australian ore, trading volume of Indian ore have also shrunk considerably, with the CFR price of 63.5 percent Indian ore standing at $60/mt.
Overall, China's domestic iron ore market will continue to face relatively strong pressure in the near future. The annual iron ore contract negotiations are still in progress, but it is hard to predict the outcome. Although Australian suppliers have agreed to reduce their prices, the actual decrease range remains the major arguing point.