/Rusmet.ru, Victor Tarnavskiy/ The decrease in Chinese steel market influenced iron ore spot market. The demand for this material dropped and the traders and the consumers try to use the existing stockpiles, which volumes in Chinese ports are estimated as 70 mio tons. As the result the quotations started down. By the end of the second decade of May the price of 63.5 % concentrate in Chinese ports dropped to about $160 per ton CIF, which was by 15% lower than at the peak of the growth in mid-April.
The analysts assume that iron ore prices will further decrease. But it is not clear, to which level it will drop before the stabilization. Various experts provide different prices estimations, such as from 130-140$ for $150 per ton CIF. Director General of BHP Billiton, Marius Kloppers believes that the consolidation will start in the interval $120-130 per ton FOB Australia.
Anyhow, iron ore raw materials prices will decrease soon. At the same time the contract prices with the delivery in the Q3 will obviously grow significantly as compared with the Q2. According to the representative of the Chinese company Wuhan Steel, Brazilian Vale in July intends to raise raw materials prices to about $160 per ton CIF as compared with about $130 per ton CIF in April-June. Australian exporters Rio Tinto and BHP Billiton, according to preliminary data, also intend to increase contract prices by 25-30% to about $160 per ton CIF China and other South East Asia ports.
The problem is that iron ore companies introduce new rules of raw materials prices calculation in one’s sole discretion. They switched from set yearly prices to fluent quarterly contracts, which level depends on the spot prices indexes in previous three months with one month lag. Thus, iron ore prices in the Q3 will be determined by the spot prices in March-May. In other words they will take into account the peak increase in mid-April. Average prices level in recent 2.5 months (early March-mid-May) still amounts about $167 per ton CIF China. As per the results of all three months this figure will be obviously slightly lower. However, by all appearances, in July the contract prices will occur to be higher than spot ones.
It is had to say today, what the result will be. It is possible that some metallurgical companies will refuse to conclude quarterly contracts and will buy iron ore in spot market. In any case iron ore market gains volatility, undesirable by steel manufacturers. Iron ore prices can increase at hat very time, when steel products prices go down.
In mid-May Japanese JFE Steel announced flat steel prices increase in the Q3 by $100-150 per ton in order to cover the increasing raw materials expenses. New quotations for HRC are to reach $850 per ton FOB; the quotations for pate are to reach $900 per ton FOB. However, this goes across the current market situation. Today Chinese companies offer HR steel at $620-670 per ton FOB and plate at $660 per ton FOB and less. European metallurgists, who try to increase the HR steel quotations in July to 650 euro (more than $800) per ton FOB can face similar problem. Their plans can be spoiled, in particular, by Ukrainian products, which is offered to European buyers at $640-670 per ton CFR/DAF.
New order of prices making in iron ore market was introduced be the suppliers when iron ore prices were increasing, as well as steel products prices. Today it expects the test by fall and it can fail.