The sole oasis in the dreary land of Chinese steel market is likely to vanish. The spot iron ore prices have shown an impressive rally 5% to 16% last week thus taking the total surge to 8% to 30% for different grades in last 15 days.
It is learnt that buyers and traders are actively looking for Indian cargoes which is scarce. With the capacity elimination targets already achieved in the production hub of Hebei the mills are rearing to go full stream to meet yearly targets. The ensuing excitement has rankled the raw material market which had been silent for entire September.
Although the increase was expected, its longevity is a question mark. After the abatement of production cuts in the power house of Hebei province manufacturing units have been busy ramping production to catch up with yearly target as Q4 draws to a close.
At the same time absence of buying in September leading to release of pent up demand , curtailed supply from India still reeling under the iron ore mess and ramping up of production capacity in China with new BF’s on the anvil had completed the setting for price hike in near term.
These optimism even at its best could not erase the ominous decline in prices as Iron ore majors viz., Vale, Rio Tinto and BHP had all through held steadfast in their resolve to reduce contractual prices by 10% to 13% in Q4.
The reasons for this realistic approach can be imputed to sagging demand in Chinese domestic market likely to clock only 4.3% in 2011 after a resounding 11% and 7% growth 2009 and 2010 respectively. It is brought out by YoY drop of 2.5% in import of iron ore.
In view of the above it is widely expected that as winter stocking wanes by mid November the rally in iron ore prices will fade away.