SteelOrbis Shanghai
China's strong
iron ore imports, which increased 23 percent year on year to 161 million metric tons in the first six months of 2006, and strong domestic
iron ore production with 191 million metric tons, up 31.5 percent year on year in the first five months have now started softening ore prices in the country.
Meanwhile, with the continuous decline in semi finished steel and finished steel prices, the steel mills are not willing to purchase
iron ore. Under the pressure of cost, some medium and small sized steel mills have reduced or stopped the
production because of the sluggish demand. The domestic ore prices maintained stable over the past week, while some ore facilities stopped the
production. Domestic mines are pessimistic about the future market, with the sharp decline in the price of imported ore and sluggish commercial activity.
With the bearish imported
iron ore market at the beginning of July, prices began to see a slight decrease. On July 13, the
trading price of imported ore at ports was down RMB 10-20/mt ($1.3-2.5) compared to 15 days ago. Among them, Indian ore price was down about $4/mt, with extremely scarce
trading volume. There are three main reasons behind the price decline of imported
iron ore:
1. The announcement of “withdrawal from the port” policy by the government: On June 20, National Development and Reform Commission (NDRC) and other departments united to issue the urgent notice on withdrawing from the port, which urges
iron ore at the ports be transported to the steel mills as soon as possible, which has caused to a sharp rise in
iron ore supply.
2. The continuous decline in steel prices: For nearly one month, overall Chinese steel market is in a downward spiral. The decrease range of
rebar is above RMB 300/mt ($38), that of
HRC is above RMB 1,000/mt ($125), and that of semi finished steel is above RMB 400/mt ($50). With the increasing pressure, steel mills are cautious about their
iron ore purchases.
3. After the international negotiation on
iron ore, the imported ore prices rose sharply for a short time, while domestic ore prices were already lower than that of the imported ore. Therefore, steel mills preferred domestic ore, increasing the pressure on imported ore sales. At present, the FOB price of Indian 63.5 percent ore at Pardip,
India is about $54-55/mt, down $3/mt compared with the $58/mt bidding price at Essle,
India in earlier times. Because of the downward trend of sea transportation market, the price of imported Indian ore is $70-71/mt CIF North
China (for example, Tianjin Port), and $68-69/mt CIF South
China (for example, Xiamen Port).
On the other hand,
China's domestic miners are not satisfied with the market either. With the further decrease in semi finished steel and finished steel prices; more and more steel mills will either reduce or stop the
production, increasing the sales pressure on mines. Nevertheless, local
iron ore prices are not expected to see a sharp decline because they are limited by the cost.
With the bearish northern
China market throughout last week, some local steel mills slightly lowered their fine ore purchase prices and controlled the purchase amount in order to reduce the cost and capital pressure. Moreover, under the pressure of cost and capital, some medium and small sized steel mills also reduced or stopped the
production.
On the mines and ore processing facilities side, because of the tight ore supply and high prices, many processing facilities which do not have their own mine fields faced increasing challenges, and some facilities even stopped the
production and selling. Those who have their own mines can still make some profit, but people inside the industry said that, with increasing exploration of mines and growing costs of water, electricity and labor, the ore cost has gone up sharply; therefore the current difficulties directly lead mines to adopt “wait and see” attitude, and remain passive regarding selling.
In central
China fine
iron ore prices are higher, and the supply is tight. Some steel mills collectively lowered their fine ore purchase prices altogether in order to control their costs. These mills are on one side willing to control the continuous rise in fine ore prices, on the other side, to reduce the cost through the price adjustment and ease the capital pressure. However, because of the tight fine ore supply, mines prefer to hold a “wait-and-see” attitude at present, instead of lowering their sales prices.