China’s iron ore market rises as transaction situation improves

During the past week, Chinese iron ore prices have increased slightly while the transaction volume in the market has also risen. Entering 2011, domestic finished steel prices have increased and steel mills' profit margins are also reported to have improved. In addition, iron ore offers from overseas have remained strong, while supplies of imported iron ore are expected to become tighter in the future; these factors contribute to the strength of domestic iron ore market prices.

During the past week, the international freight market continued to drop down. On December 26, the Baltic Dry Index was at 1,733 points, down 97 points on the previous week. On December 23, the freight rate on the Tubarao, Brazil-Beilun/Baoshan shipping route was $20.61/mt, down $0.45/mt week on week, while on the same day the freight rate on the Western Australia-Beilun/Baoshan route was $8.05/mt, down $0.13/mt week on week.

In the Tangshan district, the transaction prices of 66 percent damp base iron ore have been at RMB 1,070/mt ($161/mt, damp base,VAT excluded) in the past week, while in the northeastern region market prices of iron ore are at RMB 970/mt ($146/mt, damp base, VAT excluded), up RMB 10/mt ($1.5/mt) week on week. Indian iron ore offer have indicated an increase: as a result, quotations of 63.5 percent Indian iron ore are at $158/mt FOB, while Tianjin port transaction prices stand at $175-177/mt CFR. Meanwhile, mainstream quotations of 63.5 percent Indian iron ore at Chinese domestic ports are at RMB 1,300/mt ($196/mt) up RMB 30/mt($5/mt), Australian PB fines stand at RMB 1,260/mt ($190/mt), while the market price of 65 percent Brazilian iron ore fines is RMB 1,360/mt ($205/mt), up RMB 10/mt ($1.5/mt) week on week (US$1 = RMB 6.63).

During the past week, Chinese domestic iron ore prices increased again. Preparations for the Spring Festival and concerns over supply shortages after the holiday are expected to influence domestic iron ore prices. Domestic finished steel prices have increased recently, and most mills have good expectations about the future. In January, the banks released more loans, and so traders and mills are able to purchase more. There are about 20 days left before the Spring Festival holiday, and so steel mills have increased their iron ore purchases in order to build up inventory, with the transaction situation consequently improving.

Due to the heavy rains and floods in Australia, iron ore exports of miners BHP Billiton and FMG from Port Hedland have been negatively affected. Meanwhile, India is increasingly focusing on supplying iron ore to its domestic steel mills. In this context, overseas iron ore supplies to China may become tighter in the future.