Monthly report: Iron Ore Prices Dive in Aug and not Optimistic in Sep

Iron ore prices dropped sharply in August along with the downtrend in steel market. Iron ore market was almost approaching the point of crash. Market worries increased. Foreign quote for Indian iron ore (Fe: 63.5%, DMT) slipped from US$126/tonne at the beginning of August to US$94/tonne in late August, with the decline rate at 25.4%, versus 8.7% of last month. Meantime, domestic market was also not optimistic. Most steelmakers continued to focus on imported iron ore consumption and domestic iron ore exploration had almost been restricted or stopped. Many dressing plants also suspended domestic iron ore exploration and sat on the fence. They expressed that they had no plan to return to work in the short term. Meanwhile, some large and middle-sized private miners began to limit production.

I Chinese Iron Ore Supply & Demand Situation in August 2012

China produced 391.325 million tonnes of pig iron during the first seven months of 2012, up by 3.2% over the same period of last year. Pig iron production totaled 56.321 million tonnes in July and grew by 2.9% YoY or 606,000 tonnes MoM, equaling to 90.11 million tonnes of iron ore demand and rising by 1.1% MoM or 2.2 YoY.

Iron ore imports amounted to 57.87 million tonnes in July, falling by 440,000 tonnes or 0.75% month-on-month. Average price for imported iron ore stayed at US$134.8/tonne in July, slipping by 3.07% from that of June. Iron ore import and price had seen two consecutive months' decline. China iron ore imports totaled 423.7532 million tonnes during the first seven months of this year, increasing by 9.04% on a yearly basis. Meanwhile, average import price stayed at US$134.8/tonne, down 15.25% year-on-year. Steelmakers were not active to make purchases and most large-sized steel mills focused on stock consumption. Some middle and small-sized steelmakers maintained their stocks at a low level and therefore their purchases dropped obviously. Iron ore imports were expected to drop further in the future since overall market remained sluggish.

China domestic crude ore production amounted to 715.286 million tonnes during the first seven months of 2012, rising by 15.8% YoY. Domestic crude ore production stayed at 115.461 million tonnes in July, falling by 8.1% MoM or growing by 10.8% YoY, equaling to 39.08 million tonnes of finished ore. Total iron ore supply amounted to 96.95 million tonnes, surpassing iron ore demand by 6.84 million tonnes.

Table 1: China Iron Ore Supply & Demand in 2011-2012 (in '000t)

Table 2: China Iron Ore Imports by Varieties in 2011-2012 (in '000t)

China Pig Iron/Iron Ore Production

China Iron Ore Imports from Australia, Brazil and India

Average Price for Australian, Brazilian and Indian Iron Ore

II Review on Iron Ore Spot Market in August 2012

Iron ore foreign quote speeded up its decline in August after it fell by US$20/tonne in middle and late July. Foreign quote experienced a downward spiral along with high crude steel output. Oversea miners increased their tender invitation activities in early and middle August, indicating that long-term contract ore operation faced difficulties. Iron ore spot market prices also began to slip under largely slipping foreign quote. Spot market prices for PB fines dropped from RMB850/tonne in early August to RMB640/tonne in late August. Large losses had made large-sized state-owned companies were in serious straits.

Currently, overall market supply outpaces demand. Billet and steel product prices still have room to fall further. Steel mills' cost control remains good after foreign quote has dropped by 30%. However, imported iron ore market situation is still not favorable in the coming market because crude steel production remains at a high level.

Indian Iron Ore Spot Market Prices

China Iron Ore Port Stock

III Imported Iron Ore Market Forecast in September 2012

Imported iron ore prices dropped significantly in August. PB fines price was pegged at US$90/tonne or so and some traders & steel mills began to consider making purchases. However, Australian iron ore faced the problem of short-cycle and large supply. Traders and steelmakers said that Australian iron ore had great difficulties in further decline of US$10/tonne. Moreover, spot market cost had overdrawn seriously. Further underselling activity will not play an obvious positive role in market recovery. Both market traders and steel mills have experienced the fatigue of long-term market downturn, which may spur imported iron ore prices to stabilize gradually.

IV Review on China Domestic Iron Ore Market in August 2012

The domestic iron ore market remained in weakness and downtrend affected by the whole gloomy market sentiments. Compared to the drop of RMB120/tonne in South China, the market in North China was relatively tender with price down by RMB20-40/tonne. However, the transaction activity was weak as the imported cargoes were more popular.

At the beginning of August, the steel mills slashed the procurement plan for domestic iron ore. And the procurement further weakens in the middle of the month when the imported iron ore sharply dropped and the steel mills improved the consumption of seaborne cargoes due to high cost efficiency, and some of them even suspended buying domestic iron ore concentrate.

A South-China based steel mill said they just bought a total of 30 kt of domestic iron ore in August, all of which were supplied by its affiliated mines.

The traders basically stepped out of the market and kept watching, while most of the miners cut their production or shut plants. With the market price approaching their miners' marginal cost line, the large miners who are still producing are reluctant to sell their cargoes.

However, the inventory of domestic concentrate piled at miners' warehouses ranged from 10kt to 100kt, a relatively high level compared to historical number. So if the price further dropped in the following days, we could expect more miners shut shop.