Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which began last week at $52/mt CFR China, followed an uptrend until Wednesday, July 29, reaching $56/mt CFR, and subsequently softened slightly, closing the week at $55/mt CFR. At the beginning of the current week, iron ore prices have remained stable at $55/mt CFR China. The most important factor in the fluctuating but generally upward trend of the iron ore prices during the past week was the recovery of prices in the local Chinese finished steel market in the last week of July.
Another reason for the fluctuating trend of iron ore prices is constituted by the contrary pressures from Chinese economic data and low iron ore inventory levels at Chinese ports. On the one hand, the purchasing managers' index (PMI) for China’s manufacturing sector announced at 50.0 percent for July this year, below the expectation level of 50.2, has prompted pessimistic expectations for the Chinese economy. On the other hand, the decrease of iron ore inventories at Chinese ports is creating expectations that purchases will increase and that prices will accordingly move on an uptrend in the coming days.
Meanwhile, the previous decrease in iron ore prices on July 8 to $44.5/mt CFR caused market players to focus on different strategies. The goal of decreasing production costs has now become a survival issue for small and medium-scale producers, while the big market players such as Rio Tinto and BHP Billiton have announced that they have no plans to limit their production since they can still achieve large profit margins on the iron ore tonnages they export.
Although iron ore prices are expected to continue their uptrend, the general outlook for the market is that iron ore prices will decrease in the coming days, even if trading activity improves this week in line with expectations. According to the outlook of Goldman Sachs, iron ore prices will enter the last quarter of this year at low levels, while Kelly Teoh, iron ore derivatives broker of Singapore-based Clarkson PLC, has stated that iron ore prices are unlikely to remain at higher levels due to oversupply.