Chinese iron ore market remains soft as inventories rise
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The Chinese iron ore market remained soft over the past week with a continuous ascension observed in inventory levels at the ports. Meanwhile, the mills' ongoing production cuts have continued to exert a braking effect on the rate of consumption of the accumulated market inventories. In addition, as the 2009 iron ore contract talks continue, the Chinese side still insists on a 40-50 percent price cut, which differs sharply from what the mines are offering.
Weekly change (RMB/mt)
Iron ore concentrate
damp base (iron content: 66 percent)
India fine ore
In the wake of its previous continuous decrease, the international shipping freight market began to see a minor rebound in recent days. By the end of trading on April 16, the Baltic Dry Index (BDI) reached 1,534 points, an increase of 71 points week on week. Meanwhile, shipping freight costs from Australia and Brazil to China also climbed slightly. On April 16, the average freight charge from Brazil to Beilun Port in China was $16.74/mt, up by $0.39/mt compared with the level on April 9. Meanwhile, the average freight rate from Western Australia to Beilun on April 16 was $6.49/mt, up $0.23/mt compared with the rate on April 9. In addition, the freight cost of Indian ore to China's major ports was at $11.07/mt, a minor rise of $0.05/mt week on week.
Last week, China's domestic iron ore market remained soft. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is down RMB 20/mt ($3/mt) to RMB 480-500/mt ($71-73/mt, tax excluded), while the market prices in the northeastern regions are at 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 $63-64/mt. Additionally, the price quotation of 63.5 percent Indian ore is at RMB 540-550/mt ($79-81/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has remained constant at RMB 550/mt ($81/mt), with the deal price of 65 percent Brazilian fine ore at around RMB 600/mt ($91/mt).
As regards the ongoing 2009 iron ore contract talks, it is reported by some Japanese media that Japan's four biggest steel producers have sharply reduced their outputs and have proposed a 40 percent cut to the iron ore price. However, Rio Tinto has only agreed to lower the price by 20 percent. If the iron ore talks fail to yield a quick result and have to be postponed further, this may have a direct impact on price negotiations between mills and downstream users such as producers of automobiles and household appliances. As a result, it is thought likely in Japan that the local mills will soon come to an agreement on a 30 percent cut with the global mining giants.
In addition, South Korean producer POSCO has asked for a 50 percent price reduction from the three mining giants. An insider at POSCO stated: "The mines offered a 20 percent cut, which was quite far from our expectation. We think that the iron ore price should drop at least 50 percent from the level of the 2008 fiscal year, and that the price talks should conclude with a result within April."
Looking at the current situation, given the divergence in opinions, it is still hard to see a result coming from the contract talks. Right after the 30 percent cut was mentioned by the Japanese media, the China Iron and Steel Association (CISA) stated that they could not accept a 30 percent cut. CISA secretary general Shan Shanghua said that since steel prices are down to the levels of 1994 iron ore prices should also go back to the same level, which means that iron ore prices this year should decrease by at least 40 percent.