Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which were at $43.5-44.5/mt CFR last week, have decreased by $1/mt since last Friday and have started this week at $42.5-43/mt CFR. Last week, the ongoing declines in the capacity utilization rates of Chinese steel producers and the heavy snowfalls seen in northern China seriously impacted iron ore prices. Market sources state that Chinese steel producers are currently unwilling to conclude iron ore bookings and are keeping their inventories at low levels amid declining domestic finished steel demand, cash flow problems and their tight own profit margins.
Meanwhile, the iron ore price in Singapore’s most active iron ore futures market has decreased by more than three percent, with contacts traded at $39.67/mt and $38.85/mt for the months of January and February respectively, against the backdrop of concerns that the economic slowdown in China will result in reduced demand for iron ore.
On the other hand, iron ore supplies continue to increase despite the decreases observed in demand. Gina Rinehart, chairman of Hancock, which holds the largest stake in the Roy Hill mine, has stated that the first shipment from the mine is scheduled to be loaded in the coming days. Roy Hill is targeting an output of 55 million mt a year. Meanwhile, Gordon Johnson, an analyst at Axiom Capital Management, has shared his expectations that iron ore prices will likely continue to decline, trending into the $30s per metric ton due to lower Chinese demand and rising supply, including the start of production at Roy Hill. However, the expectation of London mining analyst firm Liberum Capital is that the price of iron ore will fall to $35/mt over the next 12 months, with this low price environment in turn putting major pressure on mills which require a breakeven price of $45/mt, such as South Africa’s Kumba Iron Ore.