The chips were down in the iron ore market due to a shaky steel market and the macro economic downturn in Europe and other locations.
Since the happenings in China are largely responsible for the swinging fortunes in iron ore markets ,the mellowed sentiments in this powerhouse has done its bit in keeping the sentiments low.
You may like to read our article dated June 1st 2010 “Is the rally in iron ore prices a flash in the pan”
The steel mills in China are compelled to reduce the prices by CNY 100 per tonne to CNY 300 per tonne as the traders refused to pick volumes due surmounting inventory. The token reduction in price won’t suffice it has to be supplemented with reduction in production thereby curtailing demand for iron ore.
For the moment the actual levels remained unchanged as no transactions were reported at lower levels than last reported USD 147 per tonne. Once the negativity in the finished market percolates prices are certain to buckle within next 3-4 days time.
On the flip side the negative sentiments have not deterred the big 3 from planning a price increase of 30% to 35% in the 3rd quarter as it is largely believed that the shortage of iron ore will definitely keep the going strong regardless of these short term hiccups. The prime reason for this confidence in the market is
1. Poor domestic ore quality continually raises cost of steelmaking thereby forcing mills to import.
2. Use of domestic iron ore is unviable with a capital expenditure of USD 150 per tonne, and operating costs around USD 60-80 per tonne, highlighting imperativeness of imports.