Import iron ore prices in China have undergone two rounds of declines so far in the current year, China's National Development and Reform Commission (NDRC) said in a statement issued on May 28. By March 10, import iron ore prices in China had dropped to $104.7/mt, down 22 percent compared to the beginning of the year, subsequently indicating a slight recovery. However, import iron ore prices started to move down again in mid-April, declining to $97.2/mt as of May 20, the lowest level since September 2012.
According to the NDRC, the declines in import iron ore prices have mainly been due to oversupply. Since 2003, foreign mining enterprises have stepped up investments in new projects, increasing their iron ore output capacities. In 2014, newly-added global iron ore output capacity is expected to reach 130 million mt, with overall global capacity reaching 1.5 billion mt (excluding China). Meanwhile, with the sluggishness of the global economy, and especially with the end of China's period of high-speed growth of demand for steel, iron ore demand is less vigorous than before.
In the coming two to three months, iron ore shipments arriving at China are expected to indicate steady growth and so iron ore inventory at Chinese ports will remain at high levels in the long term. It is thought that iron ore prices are unlikely to see a rising trend as demand for finished steel only indicates slow growth. In this context, the ongoing decline in iron ore prices is good news for China's steel industry as costs will be lower.
However, the decline in import iron ore prices has exerted a negative impact on domestic iron ore producers in view of their higher costs. The average costs of iron ore production worldwide stand at $54.7/mt, while production costs of domestic iron ore enterprises stand at $75-145/mt, approximately twice the cost levels of the major overseas miners like Rio Tinto, BHP Billiton and Vale.