Chinese iron ore market in stalemate

Chinese iron ore market in stalemate

Iron ore prices continued to fall slightly in China due to the continued reduction of procurement prices by steelmakers and the differing opinions held by miners and steelmakers towards the future of the market. There was a lack of activity this past week for domestic ore as neither side thought the current price was reasonable. However, prices of imported iron ore stopped declining, and even tended to be stable. Nonetheless, transaction volume did not pick up. Compared to the previous week, by the end of trading on Thursday, October 27, the price of 66-percent dry base iron ore in Tangshan had fallen RMB 20/ton ($2) to RMB 640/ton ($79) including tax. The price quotation of 63.5-percent Indian fine ore was RMB 650/ton ($80) at Tianjing Port and RMB 640/ton ($79) at Qingdao Port. Both prices were unchanged. In response to the large decline in steelmakers’ profits after the price decrease of finished products, steelmakers such as Shougang and Jinan Steel in Shandong Province and Tangshan Steel in Hebei Province further cut their procurement prices of iron concentrate. Mines, however, were not eager to sell their products. Instead, they maintained “wait-and-see” attitudes, which in turn led to few transactions. Steel mills might find themselves in a tough position soon, however, as their own inventories are running low. Sources report that steelmakers and miners will participate next month in the negotiations for 2006 iron ore prices. The continuous price reduction in steelmakers’ purchasing prices could set the tone for the upcoming negotiations. However, steelmakers face great risks in reducing prices continuously due to their low inventory. If steelmakers start purchasing all at the same time, iron ore prices might shoot up considerably in a short period. Such a scenario would not be favorable to steelmakers ahead of November’s negotiations. Steelmakers worry about the current situation, and they are not confident about being able to force mines to sell their products at low prices. The market will remain in a stalemate for the short term. SteelOrbis Shanghai