Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which moved in the range of $41.5-45/mt CFR last week, have remained stable since last Friday, starting the current week at $44.5-45/mt CFR. During the week ending February 5, the last work week before the Chinese New Year holiday, prices of import iron ore in China moved upwards gradually each day and increased by seven percent overall during the course of the week, reaching the highest price level since November 2015. Meanwhile, according to the report issued by China’s Xinhua News Agency, on February 1 iron ore inventories at 33 major Chinese ports amounted to 92.61 million mt, declining by 1.92 million mt or 2.03 percent compared to January 25.
In late January, after Port Hedland - located in the Pilbara region of Western Australia - was hit by Hurricane Stan, shipments of iron ore to China declined. Accordingly, tightness of iron ore supplies was observed in China for a short period and this situation provided support for iron ore prices in deals concluded after the hurricane.
Meanwhile, during last week, international credit rating agencies announced their credit ratings and commented on the current situation in the iron ore market. Standard & Poor's Ratings Services (S&P) affirmed its 'BB' corporate credit rating for Australia-based mining company Fortescue Metals Group Ltd, stating that the negative outlook for Fortescue reflects the challenging market conditions facing iron ore players. S&P also remarked that slower demand growth from China's struggling steel industry and the continued increase in low-cost seaborne iron ore supply ensure that conditions will remain tough. On the other hand, the credit rating agency Fitch has forecast that the fundamentals for the iron ore industry will deteriorate further with additional supply coming online from major low cost producers, coupled with a slowdown in economic activity in China and further depreciation of the Chinese currency.
While global iron ore prices are expected to remain stable during the Chinese New Year holiday, in the outlooks issued by research companies and investment banks iron ore prices are still expected to trend downwards. ANZ senior commodities analyst Daniel Hynes said the supply disruptions were temporary and short-lived and the price trend would soon reverse, with prices expected to push back below $40/mt over the next few weeks. Meanwhile, Zhao Chaoyue, an analyst at China Merchants Futures, said that, while iron ore would extend gains after the Chinese New Year, it would slide back to $35/mt by August. However, Macquarie Group believes a return to sub-$40/mt prices is unlikely.