Balanced supply and demand in Chinese iron ore market

SteelOrbis Shanghai Chinese iron ore market has been in a weak stable condition over last week with slight price decreases in some regions. On March 23, the price of 66 percent damp base iron ore in Tangshan fell RMB 10/mt ($1) weekly to RMB 500/mt ($62), and that in Beipiao, Liaoning Province remained unchanged at RMB 410/mt ($51), both prices excluding taxes. The price quotation of 63.5 percent Indian fine ore dropped RMB 5/mt ($1) to RMB 630/mt ($78) at Tianjin Port, and the price at Qingdao Port kept firm at RMB 615/mt ($77). Australian Hamersley 63 and 64 percent fine ore at Beilun Port remained constant at RMB 620/mt ($77). Under the circumstances that the prices of finished steel and semi-finished steel are in a downward trend, some steel mills in Hebei Province cut the purchasing prices of iron ore, leading to slight downward trend for iron ore prices. In other regions, though iron ore prices did not change much, miners and concentrating mills were anxious due to the bearish deals concluded. The current iron ore inventory at ports is rather high, therefore, prices at some ports dropped slightly. Chinese iron ore market has experienced some subtle changes since late 2005. The iron ore prices at present are rather weak compared with those in early last year. After the Spring Festival, the finished and semi-finished steel prices move up quickly, while iron ore prices went up slowly. However, iron ore prices are now moving downwards when finished and semi-finished steel prices also go down, different from the strong iron ore prices from 2003 to early 2005. Although the exact statistics are not available at the moment, it is apparent that Chinese domestic iron ore supply and demand entered reached equilibrium basically. The imbalance remains only at some of the markets. Nevertheless, the above situation hampers the iron ore price negotiations. On the one hand, domestic steel mills realize the changes in the supply and demand relationship. Therefore, they are not willing to accept the price increase by international iron ore suppliers. On the other hand, locally produced iron ore prices are still higher than that of imported ores as the changes in the supply and demand relations have not yet been fully established. As a result, there is no evidence to prove to international iron ore suppliers that the supply and demand relation in China has reversed. If the iron ore prices in the long-term supply contracts are high, Chinese steelmakers will make great losses when the changes in supply and demand relation become obvious, and domestic ore prices will get closer to the imported ore.