Both buyers and sellers of iron ore pause after the price hike

SteelOrbis Shanghai Influenced by the agreement between CVRD and Thyssenkrupp on iron ore price for 2006 fiscal year, imported ore prices slightly increased in the previous week. But this trend did not continue last week, and the “wait-and-see” attitudes in the market led to stable prices. At present, large domestic miners are still confident in the future of the market, therefore, they are not very active in selling products. However, some small miners are selling at low prices, creating opportunity for steel mills to pile up stocks. Therefore, most steel mills have not adjusted their purchasing prices, and some steel mills in Handan and Xingtai even reduced their purchasing prices. However, on the whole, the current domestic iron ore market situation is still not clear, both suppliers and purchasers hold “wait-and-see” attitudes. The inventory at ports slightly decreased throughout last week. On May 19, the total inventory of iron ore in China's twenty-three major ports was at 41.8 million metric tons, down 300,000 metric tons compared with the previous week. Among the total inventory, about 9.25 million metric tons were Indian spot trading ore, down 350,000 metric tons week on week. According to China Chamber of Commerce of Metals, Minerals and Chemicals Exporters and Importers (CCCMC), 63.5 percent iron containing Indian fine ore is being sold at $49-50/mt FOB India, and at $65-66/mt CIF China, down $2/mt week on week. For Chinese steel mills, the situation of the international iron ore price negotiation showed a sudden turn in the previous week. By using the strategy of settling from easy to difficult and one by one, CVRD successfully signed agreements with most steel mills, including Arcelor, BHP and RITO. As the attitude of Nippon Steel also changed, there is only Chinese steel mill left alone. Furthermore, the 19 percent increase also exceeds the 12.5 percent psychological expectation considerably. In fact, it is not the 19 percent increase that puts China in trouble. With the rise in finished steel prices, steel mills have the ability to absorb the increase range. The real problem is that, Chinese iron ore market might see the trend of “first upward and then downward” this year. From January to April, the crude iron ore production was 145 million metric tons, up 29.4 percent year on year, surpassing the 20.1 percent increase in pig iron during same period. Iron ore production growth rate is expected to increase further, resulting in higher supplies and downward trend in domestic iron ore prices. However, when large Chinese mills sign long-term supply contracts with international iron ore suppliers, the cost will be settled for the entire year. Then, even if the domestic ore prices go down in the latter six months, major steel mills will not be able to benefit from that quite much. On the contrary, medium and small sized steel mills that are not able to import iron ore directly will benefit from it, sharpening their competitiveness compared with that of large-scale steel mills. In essence, Chinese steel mills tried to gain time by prolonging the negotiations. They were waiting for the turn in the domestic iron ore market, after which they would decide to reduce their import quantities, even if they would not lower the international price increase rate. However, they failed with CVRD's movement. Now, it is inevitable for them to accept the sharp price increase.