/Rusmet.ru, Victor Tarnavskiy/ There is no other products which prices boosted so much in global ferrous metals market, as iron ore. Since Oct. 2009 till late April 2010 the prices in international spot market increased more than twice (in fact, with the delivery to China). In particular, the quotations for 63.5% Indian concentrate in Tianjin increased from about $90 per ton CIF to $190 CIF and more. In the beginning of the first half of April the prices approached the absolute peak of July 2008 ($198-200 per ton CIF China).
If earlier high iron ore prices were the headache of Chinese companies which bought raw materials out of the traditional system of yearly contracts, now the prices level in China interests all participants of the market. The lead iron ore corporations, such as Vale, Rio Tinto, and BHP Billiton could gain new system of quarterly contracts for iron ore, the prices on which are based on the spot indicators. According to the British news-paper «The Financial Times» each of iron ore suppliers used its own formula during the negotiations with the suppliers. However the price for Japanese metallurgists for the Q2, 2010 was based on the average level of spot quotations in Dec.-Feb. excluding average shipment expenses. Formerly Chinese manufacturers were offered to calculate the prices for the Q2 from the average cost of iron ore during the Q1. However, according to the details of the contracts concluded in late April between Chinese metallurgists and Australian iron ore suppliers, the Japanese variant with one-month lag was taken for a basis.
Thus, iron ore price in the Q3 on new contracts will be based on the spot quotations for March-May. Today, when two of these three months are behind this does not promise anything good for the metallurgists. The average level of spot prices for Indian 63.5% concentrate in March-April amounted about $165 per ton CIF China at the shipment tariffs about $13-20 per ton. If the quarterly price were calculated according to two months, raw materials consumers should prepare for more than 30% increase of iron ore prices in July and the prices could reach about $140-150 per ton FOB Australia. But there is a month ahead and the prices in the spot market are close to the peak.
Almost 50% increase of iron ore prices in China in Feb.-April can be explained by several factors. First of all, import volumes growth played its role. In the Q1 Chinese companies imported 155 mio tons of iron ore raw materials, which was by 18% more than in the same period of the previous year. At that the traders speculated for a rise. Large input into the prices boom was provided by the “non-market” factors. Thus Chinese metallurgical association CISA trying to withstand the suppliers’ dictate, announced boycott to iron ore from Vale, Rio Tinto, and BHP Billiton. But it only spurred the shortage, since these companies started to supply the raw materials to other East Asia countries and cut the supplies to China.
Besides, Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporter (CCCMC) also contributed to iron ore shortage, having banned the import of raw materials with less than 60% iron content for its members (such a material was bought in India earlier). Indian export also decreased recently. The fight against illegal iron ore extraction in Indian state Orissa, held since the end of last year, caused the stop of about 60 enterprises and the decrease of external supplies.
However, in recent week in China iron ore prices somewhat decreased. Chinese metallurgical companies, having faced the fall in the national steel market, decreased the purchases of expensive raw materials. The traders who kept the material hoping for further price increase, started to sell it. Besides, the lead Chinese steel producers have concluded quarterly contracts with the suppliers, having agreed for their conditions. Due to this iron ore volumes in spot market and the demand for it decreased.
Today the holiday pause starts in China. After its termination the prices for imported iron ore are expected to fall. Some analysts believe that raw materials price will remain high anyway ($180 per ton CIF), the others forecast a fall to $130-140 per ton CIF. The situation will depend mostly on Chinese government policy. According to some Chinese sources, the government is going to tighten financial policy in May to avoid the overheating of economy, which showed 12.1% GDP growth in the Q1. The investments into real estate in this period were up 60% on the same period of last year. According to the specialists the People Bank of China is to increase the discount rate soon and to take measures on commercial loans limitation. It will cause the decrease of the demand and the prices for steel products. Iron ore priced are to follow steel prices.
However, the prices fall in spot market is unlikely to be long and deep. The enlarging of steel production volumes in China, East Asia, and Europe contributes to stable raw materials shortage. According to the forecasts of some experts it will turn to the excessive supply not earlier than 2012-201, when new iron ore enterprises in various region of the world will start. Besides the decrease of the supplies from India should be expected soon. In late may rain season will start in India, which will spoil iron ore extraction and shipment. Indian Ministry of Steel Industry insist on the introduction of 20% export duty on iron ore raw materials in order to decrease its export ands to keep resources for the national metallurgists’ needs.The experts of Ruters in late April said that in the Q3 iron ore in spot market would start growing again and will reach $200-210 per ton CIF China. In any case raw materials for East Asia metallurgists will be even more expensive in the Q3 than in the Q2. This makes further increase of steel products prices the priority goal.