Bloomberg has reported that iron ore is recovering from a three-year low just as mining giants Brazilian Vale, Australian Rio Tinto and BHP Billiton start talks with Asian steelmakers to set prices for annual supply contracts. All three miners had said in November they would cut iron ore output.
According to the report, prices have risen 33 percent since October to $84.50/mt for immediate delivery in China's spot market after stockpiles of the largest consumer of the metal dropped last month. Reserves fell 22 percent from the record reached in September, while shipping costs more than doubled this year as orders picked up. Imports of iron ore into China rose 6.2 percent in December, customs data show.
China's steelmakers, which cut production in the second half of 2008, are benefiting from the government's $585 billion stimulus plan to spark slowing economic growth. The stimulus package, which will increase spending on housing and railroads, revived steel demand, with domestic prices gaining for the past 80 days, the Ministry of Commerce said last week. Shares of Vale, Rio and BHP, which ship 75 percent of the world's iron ore and depend on China for about 20 percent of their sales, have gained more than 50 percent since their lows last year.
Over the past few months, the Chinese have not been using Australian iron ore. However, with the Chinese industry recovering and the mills starting to increase production, iron ore stocks at China's ports fell 2 percent to 58.6 million mt by Friday, February 6, compared with two weeks earlier. Also, the Capesize and Panamax freight rates have risen and the Baltic Dry Index is going up, which shows the mills' recent price hike has improved the market confidence in recovery of iron ore demand.
Talks between Shanghai-based Baosteel, China's largest steelmaker, and Rio Tinto started in January and any changes will take effect as of April 1, the beginning of Japan's fiscal year.