China’s iron ore market sees slowdown in trading

China's domestic iron ore market remained on its sliding trend over the past week. Currently, with significant room still available for further downward movement in the domestic finished steel market, most players believe that iron ore prices in China will continue to move down in the future. Moreover, at present mills seem quite cautious as regards purchase activity, and, in this context, certain signs of shrinkage in market demand are seen as well as a slowdown in market trading.

The international shipping freight market has posted a decline during the past week. On August 26, the Baltic Dry Index (BDI) closed at 2,427 points, down just 187 points compared with the level on August 19. On August 26, the average freight charge from Brazil to Beilun Port in China was $28.90/mt, down by $1.29/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on August 26 was $12.12/mt, a slip of $0.71/mt week on week.

In the past week the iron ore market in China has retained its downward movement, while at the same time a great deal of confusion has been seen in market quotations of both domestic and imported ores. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is down by RMB 40/mt ($6/mt) to the level of RMB 590/mt ($86/mt, tax excluded), while the market prices in the northeastern regions stand at RMB 520/mt ($76/mt, damp base/tax excluded), down RMB 20/mt ($3/mt) week on week. Meanwhile, the prices of 63.5 percent Indian fine ore has declined sharply - by $12/mt - to $73/mt FOB, while the CIF price (Tianjin Port) has fallen by $13/mt week on week to $90/mt. Additionally, the price quotation of 63.5 percent Indian ore has slipped by RMB 50/mt ($7/mt) week on week and is now at RMB 750/mt ($110/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has declined by RMB 40/mt ($6/mt) to RMB 730/mt ($107/mt), with the market price of 65 percent Brazilian fine ore down by RMB 50/mt ($7/mt) to RMB 750/mt ($110/mt).

The Chinese iron ore market has been characterized by a declining movement in recent days, and this trend is expected to continue in the short term also. Although the domestic finished steel market generally halted its downtrend and became stable over the past week, negative factors still exist which are likely to drive steel prices down further. Although steel production rates in China are at fairly high levels, steel mills are still able to make a profit at the current time and so their outputs are likely to continue to climb. Furthermore, with steel prices remaining high in most regions, effective consumption of inventory appears difficult in the market in the short run. It is generally believed that China's finished steel market will not register any recovery until negative issues such as high output levels and high inventory are resolved.

On the whole, the Chinese iron ore market has been greatly impacted by the softness of the local finished steel market. As a result of the reduced purchasing activity of various mills, market demand has indicated a certain shrinkage, thus forcing some iron ore traders to stimulate sales by lowering prices. Although it is heard that the three overseas mining giants have been cutting shipments of spot ore to China, iron ore inventory at the Chinese ports has continued to increase in recent days. At present, the market quotations of 63.5/63 percent Indian fine ore in China are down to the level of $90/mt CIF, but only to see few takers. It is thought that quotations of Indian ore to China are likely to go down further in the near future.