Iron ore prices depreciated by USD 2 per tonne over the week end heralding the much awaited roll back after a hurtling growth over the last 75 days. The brazen spike in spot prices by over 50% touching pinnacle at USD 190 per tonne if not unparallel was certainly rocking in the post recessionary phase.
Presently the market is low with proclivity towards wait and watch. This tendency can be imputed to weakness in steel prices during the last fortnight. The government's restriction on financing for 3rd transactions aimed to regulate the reality sector and purge it of its malpractices has mellowed the sentiments. It has had a cascading impact on the stocks market as well as steel future market.
Contrary the usual cycle of an extended correction after upswing the shedding is expected to be short lived. Characterized by blips it is expected to be stable and slightly increase.
The following reasons will play a stellar role in the short run to keep the levels firm.
1. The current slow down in steel prices is responsible for the lull in ore prices as mills are not expected to accumulate inventory during this period. But this is a temporary phenomenon and once the mills gradually consume their earlier purchased cheap raw materials, their production cost will increase and should hike ex-work prices accordingly, which could then improve the market sentiment.
2. Iron ore supply is still on tight noose and could become another major reason that support or push up the prices. Currently, iron ore stocks at most of steel mills are low, and they will need to purchase soon.
3. Supply from India will be constricted during the rainy season backed by the prediction of a normal monsoon by Indian Meteorological Department from mid May to mid September
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4. Imposition of 15% hike on export duty for lumps
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5. Increase in railway freight by INR 100 rupees will further restrict the export or shippers will need to pass the cost increase, at least partly, to buyers.
6. The never ending imbroglio between CISA and big 3 miners over the hike in contract prices commensurate to the spot market prices and shift to quarterly/index based price will hold sentiments on tight leash.
We are of the firm view that this recess is primarily owing to part time operators trying to release their position cargo at below par prices with an objective to fix profits. However major operators would like to bid their time for the opportune moment.
With the impending gradual shift form benchmark pricing based long term contracts to spot cargos, it has become more vital for both sellers as well as buyers to precisely monitor the daily movements of iron ore spot prices to keep tab on trends and spot opportunities.
This has galvanized us to start reporting domestic prices of iron ore at Barbil & Bellary and export prices on FOB Indian port.