Having increased by a margin of $1.81/mt last week, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port have remained stable at the start of the current week as compared to the closing price at the end of last week, remaining unchanged at $67.8-68.9/mt CFR China due to the national holiday in China, today, June 18.
Global iron ore prices, which started last week with a decrease due to the softening of the Chinese iron ore futures market, moved upwards during the remainder of the week supported by the increases in domestic steel prices in China. While market players had been finding it difficult to predict the movement of Chinese domestic steel prices in June, sentiment in the domestic steel market improved after major Chinese steel mills announced in mid-week that they will increase their base prices for July deliveries. Accordingly, steel prices in the Chinese domestic spot market and futures market moved upwards. Consequently, global iron ore prices also increased. The announcement by the Chinese government late last week of production cuts for new steel mills across the country, including in Tianjin, Hebei and the Yangtze region, has also provided support for the increases in global iron ore prices and so their upward movement continued.
Meanwhile, lately, demand for high quality iron ore in China has increased in line with the goal of decreasing environmental pollution and boosting production efficiency and capacity at Chinese steel mills. However, according to the trade report announced by Reuters and calculated based on the iron ore traffic at Chinese ports and import data, Chinese steel mills continue to import medium and low grade iron ore. While Chinese mills prefer using high quality iron ore in order to achieve more efficient production, they have difficulty in finding new sources of supply.
As for the latest news, Australian mining company BHP Billiton has announced that it has approved US$2.9 billion in capital expenditure for the South Flank project in the central Pilbara, Western Australia. The South Flank project will fully replace production from the 80 million mt per year Yandi mine which is reaching the end of its economic life. This investment is expected to increase the quality of Australian iron ore by a certain margin.
Also, on Friday, June 15, trade tensions between the US and China increased further. While the Trump administration said it was placing a 25 percent tariff on $50 billion of goods from China related to intellectual property and technology, and pledged to impose further levies if China retaliates, within minutes China announced plans for 25 percent tariffs on US goods worth $50 billion. This situation resulted in sharp declines in steel shares in the US, though it has not impacted the Chinese market yet due to the national holiday on Monday. However, this week, iron ore prices in Chinese futures and spot markets are expected to soften against the backdrop of these developments.