Triggered by the bullion sell offs and overall negative sentiments for commodities across the board, iron ore prices dropped from its recent highs by more than 6% in the last 10 days. Both Chinese steelmakers and traders expect the market to further drop citing the global financial turmoil and reduced steel demand. The one week long national holiday of china has cooled the price volatility a bit and iron ore prices will take a direction only after China reopens on 8th October.
The Chinese mills are currently hit with tight liquidity pressure from the banks. The sharp drop in rebar prices in the international market might keep the mills away from fresh purchases of iron ore. Currently unsold cargos in high seas carry a higher cost and the recent sharp drop in ore prices has prompted the traders to reduce the offer price considerably to arrest further losses. Both Brazilian and Australian prices also dropped sharply along with the Indian fines. High grades ores had a higher fall compare to the low grade iron ores owing to the fact the supplies from India are still bare minimal. The 63% grade Indian iron ores is quoted at $178 per metric ton on CFR china basis.
In spite of all these negative factors affecting the iron ore prices, china still imports a considerable amount of iron ore majorly from Australia, Brazil and India. Especially, Indian iron ore gives the Chinese medium size mills the best performance cost ratio which can be attributed to smaller parcel size, short lead time and better quality. But the recent measures taken from Indian government is slow and steadily stripping of these advantages from Indian ores thereby costing a huge revenue loss for the Indian exporters. Iron ore stockpile in china posted a decrease after several weeks and stood at 93 million MT approximately. Indian stock pile continued its decline with current stock level of around 12 million MT across the major ports.
The export duty which was at 5% and 15% respectively for fines and lumps has been increased to 20% on both. This hike had taken up a major share of price advantage what Indian ores had in the market. In addition to this, several mines across India is still non operational which has dried the availability of the material considerably. Due to the lack of material availability and reduced price advantage, Chinese mills have ventured to other countries like South Africa and Chile for iron ore procurement. Indian iron ore currently enjoys a Chinese market share of more than 27% which, if the Indian government does not take swift measures to normalize the export segment, can considerably reduce in the following years.
Indian domestic market is equally hit by the shortage of iron ore and many plants are almost at the verge of shutdown due to non availability of material. The recent decision by the Jharkhand government to sell the iron ore fines to other states and stockpile auction in Karnataka will benefit only very few big players. The medium and small steel makers will be in deep trouble if the mining activity continues to be hampered.
The iron ore prices will remain stable with a negative bias till the Chinese market reopens. It will be interesting to see whether the new mining bill burden on Indian exporters will arrest the price fall or the global financial turmoil will pull the prices to further lower levels.