China projects cheaper iron ore for remainder of 2005

China projects cheaper iron ore for remainder of 2005

Monday's agreement between India and China to expand their economic ties coupled with BHP's retreat from seeking a freight premium on raw material shipments to China set the stage for falling iron ore prices in China. The China Metallurgy and Mining Enterprises Association, which includes many of China's major steelmakers, announced that global iron ore prices would also begin to decrease in June as several of the mining companies' new capacity expansions began adding to aggregate output. For instance, Brazil's CVRD plans to better 2004's production of 210 million tons of iron ore by nearly 20 million tons this year. BHP Billiton increased its production 35% to 110 million in 2004. The company intends to increase it another 30% this year. The other major producer, Rio Tinto, aims to increase its production to 171 million tons by the end of 2005. On the other hand, the Chinese domestic market continues to see piles of iron ore waiting for buyers in the ports. Beijing introduced an import licensing system in March in an effort to cut down on blind imports and ease congestion at the nation's ports. In addition, Beijing's decision to annul the 13% tax rebate on steel billet and ingot exports means the iron ore demand will take a beating. An abundance of stock coupled with waning demand means that prices should continue on the decline for the time being. Last year, the prices of major global iron ore producers were around $40. At the same time, many small traders in China were buying Indian iron ore in the $100 - 120 price range in the spot market. Last week, however, the prices of iron ore imported from India dropped from $97 to $85. The local iron ore prices vary between $67 (Sichuan) and $114 (Shangdon). Today, Tangshan Jianlong reduced its price $3.62 per ton to $89.41 per ton C&F ex-fac including taxes.