Import iron ore prices in China started to decline in the second week of May but towards the end of last week they improved slightly, closing the week at $60/mt CFR for iron ore of 62 percent Fe content for delivery to China's Qingdao port. Meanwhile, iron ore prices started the current week at $61.5/mt CFR, indicating an increase of $1.5/mt compared to last week.
At the beginning of April, import iron ore prices were at $47/mt CFR. Even though they have increased by 30 percent since then, current price levels are considered to be on the low side by the medium-sized and small iron ore producers in Australia, which believe that the current levels are damaging to the Australian economy.
In May 2014, iron ore stocks at 33 major Chinese ports amounted to approximately 109.37 million mt, compared to 87.54 million mt in May of the current year. Although stock levels have declined by 20 percent, iron ore prices have decreased by 36 percent. The declines seen in iron ore prices despite the fall in stock levels is caused by the new investments of major iron ore producers. Leading Australian iron ore producers, which produce half of the global iron ore supply, have been pursuing an aggressive policy to increase their production capacities. Recently, Andrew Forrest, founder and non-executive chairman of Australian miner Fortescue Metals Group requested an investigation by the Australian government into the large iron ore producers Rio Tinto and BHP Billiton. However, the Australian government has refused to initiate an investigation into its iron ore sector and so the biggest producers will continue their planned investments. Moreover, 80 percent of the Roy Hill iron ore mine project in the Pilbara region of Western Australia has been completed and the first shipment is planned for September this year. This project will further boost iron ore supply with its annual capacity of 55 million metric tons.
In 2014 China received 65 percent of its iron ore needs from Australia. In this context, China has made an agreement with the Brazilian government to reduce its dependency on China. According to the agreement, China will provide $50 billion in funds for 35 Brazilian firms to be spent on infrastructure projects in Brazil. With this agreement, Brazil is expected to strengthen its dated infrastructure, which is used in the transportation of important raw materials such as iron ore.
On the other hand, the housing sector in China, which is one the main consumers in the Chinese steel market, has continued to lose strength. Market sources state that this situation is caused by the excessive investments made in the sector in previous years. The Chinese housing sector is believed to have peaked and from now on the greater sluggishness in the sector will increasingly have a negative impact on the Chinese steel market.
Although iron ore prices of 62 percent Fe content for delivery to China's Qingdao port have started to increase after its decline to $47/mt CFR, the new investments of the large iron ore producers and the slower demand in the Chinese housing sector will negatively influence iron ore prices and so the current upward price trend is expected to be short-lived.