Chinese iron ore market starts to indicate weak trend

During the past week, the Chinese iron ore market has started to indicate a weak trend, with the drop in domestic spot market steel prices influencing demand for iron ore. The iron ore market trend is expected to remain weak in the coming period.

During the past week, the international freight market has been characterized by downward movement. On February 24, the Baltic Dry Index was at 1,242 points, down 50 points on the previous week. On February 24, the freight rate on the Tubarao, Brazil-Beilun/Baoshan shipping route was $18.18/mt, down $0.3 week on week, while on the same day the freight rate on the Western Australia-Beilun/Baoshan route was $6.56/mt, down $0.17/mt week on week.

During the past week, Chinese import iron ore prices dropped down, while domestic iron ore prices also started to decline, though prices were stable in some regions. In the Tangshan district, the transaction prices of 66 percent damp base iron ore have been at RMB 1,150/mt ($175/mt, damp base,VAT excluded) in the past week, down RMB 10/mt ($2/mt) week on week, while in the northeastern region market prices of iron ore are at RMB 1,040/mt ($158/mt, damp base, VAT excluded). Indian iron ore offers have dropped; as a result, quotations of 63.5 percent Indian iron ore are at RMB $171/mt FOB, while Tianjin port transaction prices stand at $191-192/mt CFR, down $6-7/mt week on week. Meanwhile, mainstream quotations of 63.5 percent Indian iron ore at Chinese domestic ports are at RMB 1,360-1,370/mt ($207-209/mt), down RMB 30/mt ($5/mt) compared to last week. Australian 62.5 percent PB fines are standing at RMB 1,360/mt ($207/mt), down RMB 20/mt ($3/mt) week on week, while the market price of 65 percent Brazilian iron ore fines is RMB 1,440/mt ($219/mt), down RMB 20/mt ($3/mt) week on week (US1=RMB 6.57).

Market sources reveal that the Q2 iron ore contract price for China will continue to increase. According to Platts, in Q2 the CIF price of Carajas 66 percent fines from Brazilian miner Vale will be $199/dry metric ton, up 15.9 percent over $172/dry metric ton in Q1. Meanwhile, Rio Tinto's FOB price for 62 percent PB fines will increase to $170/mt, up 34 percent quarter on quarter.

During the past week, the Chinese iron ore market has in general started to trend in a downward direction. The uncertain international situation and the tightening of Chinese monetary policy, as well as the wait-and-see stance of steelmakers and traders have had a negative influence on the iron ore market in the past week. Given the political turmoil in the Middle East and North Africa, market players are inclined to avoid risks for the time being. Prices of iron ore from India, Australia and Brazil have lately dropped. Although domestic steelmakers have increased their March prices, domestic spot market prices have dropped for both construction steel and flat steel products. In this context, steelmakers and traders have slowed down their iron ore purchases. All the above factors have caused China's iron ore market to weaken in the past week.