Global iron ore prices have fallen down by USD 6/MT in a month’s time. Prices have hit almost 3-month low levels and also currently heading towards further decline. Starting Oct’15, amid long week holiday for National Day Holiday, spot iron ore fines (Fe 62%) prices began with USD 55/MT CFR China and finally ended at USD 49.5 /MT, CFR China on 30 Oct’15.
Chinese iron ore market is still very cold. Market participants anticipate that prices may fall further in the coming months. Dwindling demand and shrinking steel consumption in China have forced Chinese steel mills to cut output. This will definitely pressurizing iron ore prices.
Market drivers of the month
1. Overall demand in China is weak as economic growth is still slow. Mills are facing heavy losses, driving them to cut production. However to recover from the slowed economy in China, Chinese government has also taken some measures. They have reduced the interest rates on bank loan in order to recover from the economical conditions.
2. Major iron ore producers namely Vale, Rio Tinto and BHP Billiton showed strong production output for last quarter, according to their quarterly reports. Vale’s iron ore production stood at 88.2 MnT, Rio Tinto at 91.3 MnT and BHP Billiton at 61 MnT. Despite higher production, these companies aim to retain at their annual production guidance for the year.
3. Influx of more low cost iron ore into the world’s top iron ore consumer and various expansion plans and upcoming new projects by Vale and Roy Hill, would definitely drive down iron ore prices.
4. Iron ore inventory at major Chinese ports reached 85.82 MnT till 30 Oct’15; up by 2% starting Sept’15. Analysts forecast further increase in port inventories in the coming weeks.
5. Gina Rinehart’s project Roy Hill will start its first shipment by November end. This would definitely create a glut and will pressurize prices to touch a level of USD 40-45/MT by Mar’16.
6. Chinese steelmakers are battling with oversupply and declining prices as steel consumption is getting down day-by-day. Also, prices for shanghai rebar touched to an all time record low due to slow demand.
7. Steel exports are in-viable from China as the government has imposed some anti-dumping and safeguard duties on steel exports, which will pressurize prices to fall further.
Future outlook
Market analysts anticipate that iron ore prices may touch to a level of USD 40-45/MT or lower by March-end in 2016. The overall weak consumption of iron ore in China due to weak economy and less viability of steel exports and oversupply of low cost iron ore may force prices to reach at USD 40-45/MT in coming term.
On the other hand, there are only two ways to resolve the current situation in China, either to raise demand or to cut supply and according to current economic conditions, there is less hope of improvement in demand.
Leave a Reply