The spot prices of Indian iron fines, which have already retreated, after narrowly missing USD 200 mark during the week, may see further weakening in coming week as China Iron & Steel Association officially allowed steel mills to secure their requirements by bending to the quarterly pricing policy of Big 3.
In addition, with the announcement of export tax hike only for lumps to 15% has ended the uncertainties prevailing in the market of iron ore fines.
As per market reports Indian offers for 63/62 cargos have dropped to USD 180 per tonne to USD 182 per tonne CFR China.
Iron ore prices started to rally on March 12th 2010 and surged by 23% to 55% during this period for different grades thus reaching levels last seen in 2008. But worries over a likely tightening in the property market in China and reduced speculation by curbs on lower grade iron ore imports turned the market cautions and sent steel mills to drawing from their inventories.
The unprecedented escalation in iron ore prices witnessed over the last 75 days touching pinnacle at USD 195 per tonne had left all and sundry aghast. However the stalling of this ascendancy since 23rd April set the anticipation rife about a possible melt down on the anvil.
The counterbalancing forces, which have helped the cause of stagnancy in the market are as follows
1. Buyers have been valiantly resisting coercive offers of USD 187 per tonne with bids of USD 10 per tonne less.
2. CISA has been issuing slew of diktats to Chinese mills against procurement of iron ore from mining majors on a quarterly basis to leverage negotiating strength.
3. Ban on import of iron ore below FE 60% by China as a measure to control cost escalation leading to spike in prices.
4. Settlement of quarterly prices by Japanese and Korean mills at 90% hike at USD 110 per tonne.
5. Countervailing obduracy by mining majors as the settlement prices at USD 110 per tonne is more than 60% less than the current spot prices of USD 185 per tonne.
6. Small mills commence buying at quarterly prices aligned with settlement prices with Japanese and Korean mills in desperation.
7. Prediction of a normal monsoon by Indian Meteorological Department) leading to fear of constricted supply from mid May to mid September.
8. Possibility of imposition of across the board 20% export duty on Indian ore export
In the milieu price have been holding on in the range of USD 185 per tonne to USD 187 per tonne for the past one week but the balance is fickle and slightest upheaval is likely to have a cascading effect in the short term. The prime mover out of this pleasant hiatus would be direction of talks between CISA and mining majors in the coming days. At this juncture it can only be prophesized that CISA might have learnt from the failures of 2009 talks which culminated in severe hit at the bottom lines of the Chinese mills who bled at the spot market. A protracted exercise in all likelihood will see ruptures in the rank as mills would not take the death pill when global prices are on the ascendancy.