China’s imported ore prices accelerate their downtrend

Against the background of the continuing sluggishness in the Chinese iron ore market, prices of imported ore have speeded up their sliding movement over the past week. Since domestic mills are generally putting restrictions on their purchases of iron ore, market demand for iron ore in China has indicated a further shrinkage in recent days. Moreover, with hardly any deals concluded for Indian ore, imported ore prices have speeded up their downward movement and many Chinese traders are pessimistic as regards the future trend of the local iron ore market. Overall, domestic iron ore prices are likely to remain on their downward trend in the short term.

The international shipping freight market has fluctuated within a small range during the past week. On September 2, the Baltic Dry Index (BDI) closed at 2,413 points, down just 14 points compared with the level on August 26. On September 2, the average freight charge from Brazil to Beilun Port in China was $29.24/mt, up by $0.34/mt week on week. Meanwhile, the average freight rate from Western Australia to Beilun on September 2 was $11.11/mt, a slip of $1.01/mt week on week.

In the context of the overall slackness of market demand, the iron ore market in China has retained its downward movement over the past week. At present, the price of 66 percent damp base iron ore in Tangshan, Hebei Province is down by RMB 10/mt ($1/mt) to the level of RMB 580/mt ($85/mt, tax excluded), while the market prices in the northeastern regions stand at RMB 500/mt ($73/mt, damp base/tax excluded), down RMB 20/mt ($3/mt) week on week. Meanwhile, the prices of 63.5 percent Indian fine ore have dropped sharply - by $8/mt - to $65/mt FOB, while the CIF price (Tianjin Port) has fallen by $7/mt week on week to $83/mt. Additionally, the price quotation of 63.5 percent Indian ore has slipped by RMB 70/mt ($10/mt) week on week and is now at RMB 680/mt ($100/mt) at Chinese ports, while the deal price of 62.5 percent Australian PB fines has declined by RMB 60/mt ($9/mt) to RMB 670/mt ($98/mt), with the market price of 65 percent Brazilian fine ore down by RMB 50/mt ($7/mt) to RMB 700/mt ($102/mt). In recent days, prices of imported ore in the domestic market have seen a signification acceleration of their downward movement.

Looking at the current situation, given the weak performance in the domestic finished steel market and the strong downward momentum in this market, the iron ore market in China is expected to see reduced trading activity in the coming period, accompanied by a continuous slide in market prices. In view of the obvious contrast between the high market inventories of finished steel and the slow consumption of finished steel products, finished steel prices will very likely decline further in the short run. As a result of the sharp fall in the domestic steel market, finished steel sales prices have gradually approached the production cost levels of the mills, thereby forcing the mills to cut down their raw material prices and to shift the cost pressure to the upstream suppliers. Consequently, in the near future the mills are expected to continue to keep tight control over their iron ore purchasing volumes and to curb their purchase prices for iron ore.

Additionally, with a drop of 24 percent seen in import quotations of Indian ore, market prices of imported ore in China have posted a rapid fall in recent days, and are expected to decline further. Although the overseas mining giants have continued to restrict their spot ore shipments to China, the country's iron ore imports have grown steadily, with the market inventory of iron ore at Chinese ports still on the rise. Generally speaking, with mills not expected to be very active as regards purchases in the coming period, demand for iron ore in the domestic market will undergo a further shrinkage, thereby driving down prices further.