Contemporary physical iron ore market is beset with depression as the buying interest is poor. The steel future has remained on a negative course barely giving any optimism to the market.
The current phase of decline in iron ore prices is the first time in the last 6 months. All the symptoms of declining domestic levels, and hike in stockpiles at ports are indicative of the authorities might just have gone too far in the austerity measures.
Chinese domestic steel levels have been downhill for the last 1 month despite seasonality giving indications of unfair tidings on the moorings. Moreover with domestic finished stock levels already touching about 19 million tonnes for major steel products in March and the daily production levels touching 1.8 million tonnes a climb of 13% since January spells doom in the vicinity lest there is a concerted demand revival.
As for the ore prices the mining majors are flexing muscles for a nearly 20% jump in Q2 over Q1.Regardless of the current decline in prices there are inherent factors tilting the odds in favour of price hike.
1. Apart from the current weather related disruption quadrupling of export duty in India will certainly arrest the market weakness.
2. The impending arrival of monsoon in mid - May would constrict the availability from India.
3. Uncertainties of supply owing to political machinations in India affecting mining in ore rich states of Karnataka, Orissa and Goa.
4. Although China is the biggest buyer of iron ore and the movement in its demand is critical for determining the course of raw material and steel prices it can be said that it does not happen in isolation from rest of the world.
With an end to weather-related electricity rationing, and the imminent onset of the Chinese peak demand period for the construction markets in March to May, the bank believes revival in demand regardless of any constraints. The balance of probabilities is that sufficient credit is still available for continued strong expansion of the Chinese construction and manufacturing sectors.
In the trade off it can be concluded hat odds are in favour of hike in Q2 contractual prices as well as spot prices. The Indian suppliers will become bullish once the bids start flowing in to erase the scars of duty hike.