Over the past week China's iron ore market has started to move on a stable trend. Due to increase in the contract price for the third quarter, it is very likely that the contract price will exceed the spot price in the near future, which may help prevent iron ore spot prices from declining further. With the increase in the contract price of iron ore, steel producers are facing a significant reduction in profit margins, especially given the sluggishness of the steel markets.
Product name | Specification | Average price (RMB/mt) | Price ($/mt) | Weekly change (RMB/mt) |
Iron concentrate | damp base (iron content: 66 percent) | 910 | 133 | |
India fine ore | 63.5 percent | 1,250 | 183 | - |
In the past week, international freight rates have trended down slightly. On June 9, the Baltic Dry Index (BDI) closed at 3,514 points, down 527 points compared with last week. On the same day, the average freight charge from Brazil to Beilun port in China was $31.00/mt, down by $2.82/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on the same day was $12.19/mt, down by $2.55/mt compared with June 2.
During the week in question, the Chinese domestic iron ore market has generally followed a stable trend. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is at the level of RMB 910/mt ($133/mt, tax excluded), unchanged week on week, while the market prices in the northeastern region stand at RMB 800/mt ($117/mt, damp base/tax excluded), unchanged week on week. Meanwhile, the prices of 63.5 percent Indian fine ore remains at $124/mt FOB, while the CFR price (Tianjin Port) is at $152/mt, both at the same level compared with a week ago. In addition, quotations of 63.5 percent Indian ore have remained at RMB 1,130-1,150/mt ($166-169/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines is unchanged at RMB 1,160/mt ($170/mt), with the market price of 65 percent Brazilian fine ore remaining at RMB 1,200/mt ($176/mt).
In the past week, China's iron ore market has been slightly livelier in terms of activity levels, although a wait-and-see approach still generally prevails in the market. Currently, the spot price of iron ore is very close to the contract price for the second quarter. It is reported that Chinese steel producers have now received notification from Australian miner Rio Tinto that it intends to raise its third quarter price for iron ore fines to $147/mt FOB, up 19.5 percent on the second quarter price. The contract price for Q3 is higher than the current spot price of iron ore, and this fact has contributed to the stable trend observed in iron ore prices in the past week. However, since the leading domestic mills have announced a significant decline in their ex-work prices for July shipment, the iron ore market will inevitably be affected. As pig iron costs will increase by RMB 300-400/mt ($44-59/mt) following the price increase for iron ore, steel producers find themselves struggling between increased cost pressure on the one hand and the weakness of the steel markets on the other.