Chinese iron ore market continues its upward movement

Continuing its rising trend, China's domestic iron ore market observed certain increases in prices of both domestic ore and imported ore during the past week. Meanwhile, traders are generally bullish as regards the future, and some of them have even stopped giving out quotations. It has been reported lately that in the iron ore contract price talks the China Iron and Steel Association (CISA) may accept a price reduction which would be slightly bigger than the 33 percent cut agreed by Japan.

The international shipping freight market continued to fluctuate during the past week. On July 2, the Baltic Dry Index (BDI) closed at 3,742 points, down nine points compared with the level one week earlier on June 25. On July 2, the average freight charge from Brazil to Beilun Port in China was $46.40/mt, up by $3.36/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on July 2 was $17.75/mt, down $0.43/mt week on week. In addition, the freight cost of Indian ore to China's major ports on July 2 was at $17.34/mt, a slight rise of $0.3/mt compared with the level on June 25. Since a lot of Brazilian ore materials have been imported to China in recent days, the shipping freight charge from Brazil to China has been standing at a relatively high level in recent days.

Over the past week iron ore prices in China's domestic market have continued to rise. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is at the level of RMB 580/mt ($85/mt, tax excluded), while the market prices in the northeastern regions stand at RMB 500/mt ($73/mt, damp base/tax excluded), both up by RMB 10-20/mt ($1-3/mt) week on week. Meanwhile, the prices of 63.5 percent Indian fine ore are at $61/mt FOB, while the CIF price (Tianjin Port) is up by $2/mt to $82/mt. Additionally, the price quotation of 63.5 percent Indian ore has increased by RMB 20/mt ($3/mt) and is now at RMB 630-650/mt ($92-95/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has risen RMB 20/mt ($3/mt) to RMB 620/mt ($91/mt), with the market price of 65 percent Brazilian fine ore up by RMB 10/mt ($1/mt) to RMB 670/mt ($98/mt).

Against the background of the continuously climbing prices of imported ore in China's domestic market, most traders are bullish as regards the future and some traders with limited spot materials in hand have stopped giving out quotations. Looking at the current situation, export quotations of 63.5 percent Indian fine ore are around $82/mt CFR, with the corresponding calculated price at Chinese ports about RMB 30/mt ($4/mt) higher than the current spot ore prices. Thus, considering the increase in both Indian ore quotations and shipping freight costs, domestic traders anticipate that Indian ore prices will climb up further. Nevertheless, if Indian ore prices do jump up further, the price advantage of Brazilian ore, Australian ore and even of domestic ore will become increasingly evident; as a result, there is limited room for the upward price movement of Indian ore. In addition, in order to influence the ongoing iron ore contract negotiations, the Australian miners have significantly cut iron ore shipments to China during the months of May and June, leading to a temporary shortage in supplies of Australian ore; however, it is generally believed that this situation of tight availability will be alleviated by gradually increasing arrivals of Australian ore in July.

Finally, the international iron ore talks between China and the overseas miners have entered extra time. As reported by Reuters on July 1, an official from the CISA disclosed that China has softened its demands for a 40 percent cut and may accept a price reduction which would be bigger than the 33 percent cut agreed by Japan. However, the details are still unclear and the negotiations are continuing.