Slight rise in Chinese iron ore market, shipping freight costs slide

A slight rising trend has continued to be observed over the past week in China's domestic iron ore market, in which most players are bullish as regards the prospects for the future. Meanwhile, the frequent fluctuations in shipping freight costs have had a certain impact on the market in recent days.

The international shipping freight market again showed fluctuations in the past week, with a minor reduction observed in the freight charges of several shipping lines. On June 25, the Baltic Dry Index (BDI) closed at 3,751 points, down 322 points compared with the level one week earlier on June 18. On June 25, the average freight charge from Brazil to Beilun Port in China was $43.04/mt, down by $4.81/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on June 25 was $18.18/mt, down $2.5/mt week on week. In addition, the freight cost of Indian ore to China's major ports on June 25 was at $17.04/mt, a slight rise of $0.87/mt compared with the level on June 18.

Last week, iron ore prices in China's domestic market remained on their rising trend. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is at the level of RMB 570/mt ($83/mt, tax excluded), while the market prices in the northeastern regions stand at RMB 480/mt ($70/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 $62/mt FOB, while the CIF price (Tianjin Port) is up by $4/mt to $80/mt. Additionally, the price quotation of 63.5 percent Indian ore has increased by RMB 30/mt ($4/mt) and is now at RMB 620-630/mt ($91-92/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has remained at RMB 600/mt ($88/mt), with the market price of 65 percent Brazilian fine ore still at RMB 660/mt ($97/mt).

Looking at the current situation, Chinese domestic mills are still showing strong interest in purchasing imported ore on the spot market. The market performance has seemed quite active in recent days as regards sales of Yandicoogina Fines and Pilbara Blend Lump at the various ports, leading to a considerable rise in spot ore prices.

Since medium and small-sized mills generally do not have much inventory, they have been making frequent purchases of Indian fine ore at various ports. However, the mills in question do not dare to make any big purchases - the purchase volume each time is around 10,000-20,000 mt - indicating their cautious attitude as regards the future. Meanwhile, the current quotations of 63.5 percent Indian fine ore and 62 percent Australian fine ore have reached $80/mt and $77/mt respectively, significantly above the current spot ore prices. Taking into account the considerable fluctations in shipping freight costs, traders at present seem cautious when it comes to placing orders for future shipments. Since the prices are expected to go higher, traders are generally bullish as regards the prospects for the future market. In addition, China's large-scale mills have made only limited purchases of spot ore in recent days due to the support of their relatively high stocks which are sufficient to sustain their operations for 50-60 days.