Metal Bulletin Iron Ore Index

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Metal Bulletin’s Iron Ore Index

Welcome to the NEW Metal Bulletin Iron Ore Index

Metal Bulletin is pleased to announce the launch of its new iron ore index. The index is designed to provide a reference price for iron ore imported into the Chinese market which offers, for the first time, the potential for derivative contracts to be offered on a widespread basis and aid transparency.

Material is based on iron ore sinter fines, and is priced on a CFR basis to Qingdao, and material of Fe content from 58% to 66% is normalized to a base specification of 62%. Material from all origins is included in the index calculation, providing it fits the chemical and physical specifications (see methodology for full details).

The complete iron ore index website will be launched soon, in the meantime you can sign-up to receive the latest index number, with expert commentary each week by email – free of charge.

China seen to import 400m tonnes of iron ore in 2009

Singapore 13 November 2008 07:45

China is expected to import 400 million tonnes of iron ore in 2009, slightly lower than this year, according to Zou Jian, vice-chairman of China Mining Assn.

"China's iron ore imports this year will amount to 410-420 million tonnes, and next year's import volume will be slightly lower than this, around 400 million tonnes, as part of this year's imports will be consumed next year, and the country's steel production is expected to grow very slightly," he told MB.

For the first 10 months of the year, China imported 376.69 million tonnes of iron ore. For the last months, Zou expects China to import around 20 million tpm.

China has imported far more iron ore than it needed this year, Zou said.

"China has never been had such high inventories, both at the ports and in the steel plants. For some steel mills, the inventory is enough for three months' production," he said.

Chinese ports alone had amassed 89 million tonnes of iron ore by mid-October, according to official statistics.

Market participants agreed with his projections.

"The figure of 400 million tonnes is a very feasible and realistic estimate. I do not think there are any positive signs for Chinese steel mills to return to full operations, and market uncertainty will loom till the first quarter of next year at the earliest," said Xu Xiangchun, a steel analyst in Beijing said.

Iron ore traders noted that some small steel mills had resumed iron ore buying to prepare to restart operations soon, but warned that great uncertainty still dominated the market.

"They are still testing the waters, intending only to buy low grade fines in small quantities — and they may pull back at the last minute if the seemingly stabilising market dips again," an iron ore trader in Beijing said.

Zou also expects China's steel output this year to be around 500 million tonnes, and that this will rise around 5% in 2009 — the first such forecast so far.

China’s October crude steel output fell 9.4% month-on-month to 35.9 million tonnes, according to official statistics, taking ten-month output to 426.85 million tonnes.

China's domestic iron ore production is not expected to rise much in 2009 either. Local mines, which face lower margins and weak projected demand, will not increase their output much, said Zou.

China's steel mills develop taste for lower grade fines

Singapore 13 November 2008 06:28

China's small and medium-sized steel mills are showing a preference for lower grade iron ore fines amid the market uncertainty.

"The iron ore spot market has been stable over the week, though enquiries have reduced a bit, and the new trend is that small and medium-sized mills now prefer lower grade fines as they are a lot cheaper," an iron ore trader in Shandong province said.

Fines with 63.5% ferrous content are being offered at $70-72 per tonne cfr, with transaction prices estimated to be $68-70 per tonne cfr, level with last week’s $67-71 per tonne cfr.

In comparison, fines with 59% ferrous content are being offered at only $45-50 per tonne cfr, with transaction prices estimated at 47-49 per tonne cfr, slightly higher than last week's $46-48 per tonne cfr.

Iron ore officials at steel mills confirmed the market view.

"The domestic steel market may change any day although it has shown some stability in the past two weeks. We need some fines to continue production and we think it's safer to buy the cheaper stuff," an official from a medium-sized steel mill in Shanxi province said.

"Besides we think the prices for such grades are very close to miners' production costs, so there is a smaller chance of any abrupt price changes," he added.

Admittedly, lower grade iron ore fines produce less iron and consume more coke but recent coke price declines have made the use of lower grade fines affordable, said an iron ore official at a small steel mill in Jiangsu province.

Adding to the attraction is India's introduction of an 8% ad valorem export tax on iron ore from November 10, replacing the flat Rs 200 ($4) per tonne tax, according to market participants.

The mainstream expectation in the iron ore market is that it will stabilise at present price levels till the end of this year, with small swings.

China's iron ore imports fell 22% from September to 30.62 million tonnes in October, and is expected to keep on falling until the first quarter of next year (MB Nov 12).

For the first 10 months of the year, China imported 376.69 million tonnes, up 20.2% year-on-year.

China’s Oct crude steel output falls 9.4%

Shanghai 13 November 2008 08:05

Chinese crude steel output fell 9.4% to 35.9 million tonnes in October, according to the national statistics bureau, and is expected to fall further in November as production cuts grow, said market participants.

October's crude steel output was 17% lower year-on-year and takes output in the first 10 months of the year to 426.9 million tonnes, according to MB's calculation.

In a bid to encourage the plummeting market, a few leading steel mills have significantly slashed production.

Specifically, output of wire rod dropped 8.7% month-on-month to 5.67 million tonnes in October, 13.3% lower than a year earlier, while the total output for January to October rose a slight 0.8% year-on-year to 66.55 million tonnes.

Output of rebar reached 7.61 million tonnes in October, down a slight 1.9% from September and 13.5% year-on-year. During the first ten months, China produced 70.79 million tonnes of rebar, down 4.5% from a year ago.

Hot rolled coil saw the biggest drop of 17% to 370,000 tonnes in October from September, down 8.9% year-on-year, while the total output for January to October increased 7.8% to 4.7 million tonnes from last year.

Medium-sized plate output decreased 8.5% to 2.67 million tonnes from the last month, but rose 17% year-on-year to 29.46 million tonnes.

"I estimate that [crude steel] output in November may reach only 34 million tonnes as major domestic steel mills continue to lower production in the face of rising inventories, slackening demand and plunging prices. There is no possibility of them resuming production soon," a steel analyst in Beijing said.

Baltic Dry at new lows due to steel market troubles

London 10 November 2008 16:28

Dry bulk shipping rates, particularly for Capesize vessels, are unlikely to increase above current loss-making levels before a recovery is seen in the steel market, sources said.

Daily rental rates for Capesize vessels, used mainly to haul iron ore and coal, have collapsed and are currently around the $4,500 level, which is insufficient to cover operating costs of around $5-6,000 per day. Capesize rates peaked at $233,988 per day in June, according to data from Bloomberg.

“We are going to have to see some kind of rebound in the steel market before we’ll see anything, especially on the capesize rates,” a researcher at a London-based shipping brokerage said. “At the moment, everyone is slashing output from the producers of iron ore and steel. It looks pretty negative, at least for the next couple of months.”

The Baltic Dry Index, which reflects dry bulk freight rates which includes smaller ships, were trading at new lows of 829 on Monday, down 73% from the beginning of October and 93% below the peak seen at the end of May. These levels were last seen in 1999, when the market bottomed at 776 in January.

Rates for Panamaxes, used mainly to transport grain and coal and sometimes iron ore, have seen some recovery in the past week on the back of an increase in activity. “Some clients have been booking ships for periods of up to a year in the past few days, which caused the increase, but rates are still extremely low,” the source said.

The Baltic Dry Panama Index has recovered from its low of 662 on November 3 to current levels of around 836.

Chinese talk of 20% benchmark iron ore fall in 2009

Singapore 07 November 2008 03:57

Chinese iron ore market participants expect 2009 benchmark prices to fall at least 20% given the weak global and domestic steel environment.

"A 20% decline is very feasible," said an iron ore official in Beijing.

"Steel demand is so bad both at home and overseas and I do not think China's domestic demand will see much improvement till around March, after the Chinese New Year. Chinese mills have good reason to request a discount."

The other market participants shared the sentiment.

"Look back at how much more Chinese steel mills have been forced to pay the three major iron ore suppliers in the past few years when the market was booming. Now that the market has deteriorated, it is their turn to pay a bit," an iron ore trader in Shandong province said, adding that a 20% price fall would be "very reasonable".

Some Chinese steel mills were expecting 2009 benchmark prices to fall by half, said a second iron ore trader in Shandong. However, he felt that was "too ambitious a target".

"I do not think suppliers are ready to make such a sharp turn yet. Vale just said it was cutting production to accommodate a weakening market. I believe the other two may do the same and slow down expansion if necessary to bargain harder for a smaller cut," he said.

Vale as well as Australia's BHP Billiton and Rio Tinto started informal communication with Chinese steel mills in late October on 2009 benchmark prices, and the Brazilian miner may seek its own price settlements, said a second iron ore trader in Beijing close to Vale.

"Although Vale withdrew its further 12% price increase request to the Asian steel mills this year, it is clear that the company was not happy with this year's outcome, and is ready to settle its own prices next year, and not follow the Australian deal," he said.

China agreed to 65-71% price increases with Vale in February this year, but was forced to pay an average 85% price increase to the Australian iron ore miners in June when both the iron ore spot and steel prices hit a record high.

China Iron & Steel Assn (Cisa) officials have been refusing to predict China's steel production next year, but market participants anticipate that domestic steel demand and exports will remain weak for the first half.

In the year to September, China's crude steel output reached 390.95 million tonnes, up 6.22%, and monthly output has been declining since July with the September’s output at 39.61 million tonnes, substantially down from June's record production of 46.94 million tonnes.

Cisa lowered its estimate on China's steel production in 2008 to below 500 million tonnes, which would be close to 2007's 489 million tonnes, and much lower than the earlier prediction of 530 million tonnes.

In the first nine months, China imported 346.11 million tonnes of iron ore, up 22% year-on-year, of which about 89 million tonnes were sitting in Chinese ports as of mid-October.

China iron ore market shows signs of life

Singapore 06 November 2008 07:13

Chinese steel mills and trading houses returned to the iron ore spot market this week after holding off for several months in anticipation of a more stable market.

Iron ore spot prices are around $66-71 per tonne cfr for fines of 63.5% ferrous content, more or less level with last week's offers of $65-72 per tonne cfr. Freight charges from India to Chinese ports are around $6 per tonne.

"Enquiries have risen this week. I feel the market has come to a steady period after steep declines in the past few months, and present price levels are acceptable for small and medium-sized steel mills," an iron ore trader in Beijing said.

Another trader in Zhejiang province agreed, saying the re-awakening of the iron ore market may be due to a slight spike in domestic steel prices late last week.

"China's domestic steel prices increased 300-400 yuan ($44-59) per tonne for a very short period late last week, and then the prices dropped back early this week, but at least it gave a glimpse of hope to Chinese steel mills. Besides, they need to stock up a bit after months of staying put," he said.

But purchasing remains cautious, a second trader in Beijing said.

"A steelworks in northern China decided to purchase some from the ports instead after enquiring about the price of 58% ferrous content fines. He liked the price but was afraid of contract breach from the Indian side if the spot prices continue to go up in the next few weeks," he said.

Market participants anticipate that spot iron ore prices will stabilise at the present level, with minor adjustments, towards the end of this year.

"I do not think Indian iron ore miners or trading houses are willing to compromise any further. The Indian government has recently reduced the iron ore fines export tax by substituting the previous 15% ad valorem duty with a specific tariff of Rs 200 ($4) per tonne," an iron ore trader in Shanghai city said.

Spot iron ore fines delivered to China have fallen dramatically since late June, and are now only around one third of the high of $195-200 per tonne around February and March.

Plummeting rates see freight lay-ups rising

London 24 October 2008 12:14

The shipping industry is heading for lay-ups at levels last seen in the 1980s as freight rates plummet to levels that barely cover running costs, sources said.
The Baltic Dry Index, which reflects dry bulk freight rates, has fallen to September 2002 levels and is now trading at around 1,149. It has lost more than 90% since the peak of 11,793 seen in May.

“To be frank, it is carnage out there. Steel mills are slashing output, so they’re either postponing or cancelling orders for the raw materials needed. Ships are sitting around doing nothing in the Pacific and Atlantic,” one broker said.

Capesize rates are now around $8,600 per day, down from highs of $19,687 in June. The running cost of a capesize vessel is an estimated $6-7,000 per day.

“We’re heading to full lay-ups [before year-end], something we haven’t seen since the 1980s,” the broker predicted.

Though many vessels are already lying idle in the Atlantic and Pacific oceans, “full lay-ups” would entail owners hiring fields to dock ships and run only skeleton staff, likely one person, to look after the ship, he said.

China’s cancellation of orders, particularly of iron ore shipments from Brazil, is one of the main drivers in the plummeting market. Though Vale has disputed this, brokers say they see “absolutely no activity” between Vale and China.

“China is busy washing out cargoes. Our firm alone has seen about 20 wash-outs,” the broker said. This happens when a buyer negotiates with a ship-owner to pay the difference between the old contracted rates, say $75 per tonne, and current market rates, say $12 per tonne, when a shipment is cancelled.

“So far, they are paying, but very soon we will see legal action,” the broker said.

China wants changes in annual iron ore benchmark system

Qingdao 23 October 2008 12:06

China may seek to revise the annual iron ore benchmark pricing system, Shan Shanghua, secretary general of China Iron & Steel Association (Cisa) said.

Speaking at a conference in Qingdao on Thursday Shan said: “We are wondering whether annual iron ore price settlements with the three major suppliers is good for us, or should we change to a quarterly settlement which follows the market conditions more closely,” he said.

“We need to secure the quantity in the annual deals, but we’d like it to be a range instead of a set volume, and the prices should be more flexible than an annual settlement,” Shan added.

Shan would not make any prediction on next year’s annual benchmark prices, but he believed that the demand and supply turning point would arrive in 2009, earlier than the expected 2010, due to the recent global economic slowdown.

Tthe three leading iron ore miners — BHP Billiton, Rio Tinto, and Vale — and the Chinese steelworks have already started communicating with each other for next year’s price talks, according to Shan.

“Baosteel will remain the representative of the Chinese steel mills, and will follow the guidance set by Cisa, that will not change in the short term,” he confirmed.

China was forced to agree to Vale’s 65-71% price increases in February, and an average 85% price rises for the Australian iron ore miners in June when iron ore spot prices were at their peak.

However, iron ore spot prices and freight charges slumped after the settlement and Chinese steel mills have been hit hard.

In February, iron ore spot prices were around $195-200 per tonne cfr for fines with 63.5% Fe content. Current prices are just around $70 per tonne cfr, well below benchmark prices.

And Shan said it was time to erase the difference between spot and long-term prices.

“We do not think it necessary or right to have two prices for iron ore in the Chinese market, Japan has only one price, and it is working fine, so it is time for China to have one price instead of two,” he said.

When commenting on Vale’s request for an extra price increase in September, he said that it was a breach of contract from Vale’s side, and he reiterated that in the iron ore business the buyers and sellers should be mutually relying on each other.

“Iron ore is just a common commodity, it is not a strategic material, and it is only limited to the utilisation in steelmaking, so the reliance is mutual, and the Chinese steel mills do not have to be too concerned that there will be no iron ore available, the world is abundant with iron ore resources,” he said.

China imported 383 million tonnes of iron ore in 2007. Up to September this year China imported 346 million tonnes of iron ore, up 22% year-on-year.

Sesa Goa's Q2 net profit up 259%

Mumbai 23 October 2008 04:55

India's largest private iron ore producer Sesa Goa said its net profit rose 259% year-on-year to Rs 3.4 billion ($68 million) for the second quarter ended September 30.

Revenue rose 129% to Rs 8.7 billion.

Iron ore sales grew 14% to 1.389 million tonnes. Production of metallurgical coke increased 13% to 62,000 tonnes while production of pig iron fell 10% to 60,000 tonnes.

For the half year, net profit rose 328% to Rs 9.76 billion while revenue rose 138% to Rs 21.3 billion.

First-half iron ore sales grew 35% to 4.64 million tonnes. Production of metallurgical coke increased 4% to 125,000 tonnes while production of pig iron fell 13% to 117,000.

Vale's iron ore price move backfires

Singapore 16 October 2008 10:03

Chinese steel mills may try to negotiate lower iron ore prices from Vale, less than two months after the Brazilian miner asked them to pay more, according to a top steel industry official in China.

"Vale's recent price request is equivalent to tearing up the contracts it signed in February," said Sha Shanghua, secretary general of the China Iron & Steel Assn (Cisa). "If supply resumes, the Chinese mills will want to renegotiate prices."

In early September, Vale sent Chinese mills a request for a top-up of around 12% on annual contract prices agreed in early September.

Since then, the iron ore spot market has all but collapsed, with prices this week falling to around $80 per tonne cfr (63.5%), down from $145-160 per tonne at the time of Vale's request.

China's steel mills have declined to take shipments from Vale in protest at the price hike, Shan said.

The dramatic fall in iron ore prices means it is understandable for Chinese mills to ask lower prices, but no such negotiations are yet taking place, he said.

When Vale and Baosteel signed the original 2008/9 contract agreement in February, the spot market iron ore price was at $180-185 per tonne.

High iron ore stock levels at Chinese ports and steel plant warehouses, as well as rapidly falling steel demand in China mean that mills are in no hurry to get more material from Vale.

Major mills like Baosteel and Tangshan Iron & Steel have announced production cuts of some 20%.

"Downstream industries' demand for steel products is shrinking, so the Chinese steel mills' core concern at the moment is steel sales, not raw material," an iron trader in north China said.

China imported 97.6 million tonnes of iron ore from Brazil in 2007, accounting for 25.5% of the country’s total import volume.

Rio Tinto to review capex plans as China growth slows UPDATE

Singapore & London 15 October 2008 11:13

Rio Tinto will review its expansion plans in light of “upheavals in global markets”, said ceo Tom Albanese as he warned that demand from China for metals could fall as the economy slows down.

“The group is taking the opportunity to review the near-term spending timelines and project costs of its capital expenditure programme,” Albanese said in the company’s third-quarter operations review.

His comments came as the company warned that any rebound in demand from China following the slowdown during the Olympic Games will be delayed until next year.

“It now seems clear that any bounce in net demand will be delayed until next year,” it said.

Albanese also cautioned that the Chinese economy is not isolated from the slowdown in the USA and Europe.

“China is not completely insulated from an OECD recession and we will see an impact on Chinese exports,” he said.

Third-quarter economic data will show an exaggerated slowdown due to the delays in projects during the Olympic Games. Chinese economic growth is expected to slow to less than 10% from nearly 12% in 2007 due to tight credit policies in the country introduced late last year to address inflationary concerns.

No further details were given about capital expenditure cutbacks, but Albanese repeated the company’s line that a slowdown in the Chinese economy was probably temporary.

“The near-term slowdown of growth is substantially due to tightening of monetary policy introduced by the Chinese government last year in order to tackle inflation,” he said.

“Looking further out, Chinese GDP will remain largely driven by the domestic economy and we expect industrialisation and urbanisation to continue apace.”

The recent plunge in metals prices is partly driven by fear that a recession in developed economies could have a major impact on Chinese consumption of metals and raw materials, already weakened by domestic credit policies.

Commodity demand in China has seen a “marked reduction” due to a “long-foreshadowed deceleration in economic activity”, Rio said.

Rio expects Chinese producers of steelmaking raw materials, copper and aluminium to cut production on lower prices.

“While apparent demand for steelmaking raw materials, copper and aluminium has slowed, lower prices mean that Chinese producers are facing margin pressure and should be expected to cut their production,” it added.

Rio set new production records for iron ore, bauxite and hard coking coal in its third quarter.

Global iron ore output was 42.4 million tonnes for July-September, up 1.3% from the previous quarter and 16.5% year-on-year.

Despite the turbulence in the global markets, the long-term outlook is still buoyant, Albanese said.

“The long-term outlook for Rio Tinto remains positive despite the upheavals in global markets. In the third quarter, our business continued to perform extremely well, breaking yet more production records in iron ore, bauxite, hard coking coal and US coal,” he said.

Rio's Q3 iron ore output up 1%

Singapore 15 October 2008 08:30

Rio Tinto said its global iron ore output rose by 1% in the third quarter to reach a new three-month record.

Attributable production from the group's operations in Western Australia, Brazil and Canada reached 42.4 million tonnes, up from 41.86 million tonnes in the previous quarter, and up 16% year-on-year.

But total output from all Rio Tinto mines, including production not attributable to Rio, was 48.32 million tonnes, up less than half a percent from the July-September quarter.

Rio's share of production in the Pilbara region of Western Australia rose to 39.34 million tonnes, up 1% from the second quarter and 17.5% higher year-on-year.

"These results were achieved despite significant disruption caused by the major shutdown of car dumper 2 at Cape Lambert port for almost three weeks," said Rio in its third-quarter operations review. Output loss from this incident was still "less than 1 million tonnes", it added.

Output from the wholly owned Hamersley mines rose to 30.8 million tonnes, up 3% from the previous quarter, but production at both Hope Downs and Robe River, which are part-owned by Rio Tinto, fell.

Output at Hope Downs, in which Rio has a 50% stake, fell by 11% to 3.07 million tonnes.

Robe River, which Rio Tinto owns 59% of, produced 13.17 million tonnes, down 3.2% from the previous quarter.

Rio's Corumba unit in Brazil produced 575,000 tonnes, up 11% from the previous quarter. Iron Ore Co of Canada, in which Rio has a 59% stake, produced 4.24 million tonnes of pellet and concentrate, down 3.7%.

Rio said it has so far this year sold 12.5 million tonnes of iron ore on the spot market, and would continue to sell "depending on the level of prices available".

The latest results bring Rio's share of production for the year to end-September to 121.63 million tonnes.

Rio also produced 2.2 million tonnes of coking coal in the third quarter, up 7.3% from the previous quarter and 39.8% from a year ago.

Iron ore outlook "bullish" despite falling spot prices

London 09 October 2008

Falling iron ore spot prices and low demand in China might be attributable to "seasonal pessimism" and should not be seen as a change in the market fundamentals, market players said.

The spot market in China, where offer prices have dropped to below $100 per tonne cfr this week, was described as "dead on its back", but should be seen as a "correction to, rather than the end of a strong market".

With Chinese mills showing no indication of restarting operations at the levels expected after the Olympics, falling global steel prices and demand, the current meltdown in financial markets and fears of a global economic slowdown, a number of investment banks have downgraded their iron ore contract price forecasts for next year.

Merrill Lynch has cut its expected increase from 15% to 10%; Deutsche Bank is expecting a raise of 5-7%, down from a previous forecast of 15-20%; and UBS now expect a 15% decrease, down from an increase of 10%.

Deutsche Bank said in a note to subscribers that it expects the iron ore market to slip back into surplus in 2008-09 on the back of "easier Chinese iron ore off-take in the second half of this year, combined with a successful ramp up in supply from Australia and Brazil".

"There is great uncertainty in the moment, in all sectors. Clearly, the Chinese will take the opportunity to regain control over the situation. After the huge increases we've seen and spot prices at $200, the situation was out of control for buyers. Never underestimate the ability of the Chinese to manipulate the situation to their advantage," one UK-based trader said.

"We even have a term for it: we call it seasonal pessimism. After the negotiating season [due to start in November], demand may miraculously recover," the UK trader said.

A number of market players said they see the current slowdown in China as temporary, and that they remain bullish about the medium- and long term outlook.

One Chinese source said steel production there might not grow as fast over the next three to five years as was initially thought, but that he expects fixed asset investment and therefore steel demand to continue increasing.

"We are well-supported by a government that is determined to keep the economy growing. They can keep their eye on the ball; they don't have to be bailing out banks. They will continue to focus on lifting the rural population out of poverty and to create jobs; they will continue building infrastructure. There is enough firepower for the government to get our economy going much quicker," the Chinese source said.

"We have huge foreign reserves; we have strong domestically-generated consumption. The government is talking about tax reductions to stimulate the economy; the planned infrastructure projects will continue and will remain a major user of steel. These mills cost trillions to have, and there is enough incentive to keep them going," the source said. "What we've seen [with spot prices for iron ore falling to below $100] is only temporary; it's too early to make any conclusions."

One analyst said while the short term outlook for iron ore prices have changed, the long term drivers are still in place. "The iron ore supply side is extremely concentrated; producers can cut production if need be. And for steel production, over the long term our forecasts remain above the trend line."

"With the recent events, the risk is on the demand side. I still think these things are short term though. Over the medium and long term, however, the risk remains on the supply side; on the logistical side. The financial crisis might mean that a lot of projects might swing from being viable to not, and many might not be able to get funding," one source at a big iron ore producer said.

Copyright © Metal Bulletin Ltd. All rights reserved.

Freight rates continue decline as financing dries up

London 09 October 2008

The Baltic Dry Index, which measures dry bulk freight rates, is trading at new lows as major shipping contracts get put on hold due to a lack of financing, sources said.

"It is impossible to get financing. All major contracts are on hold, so there are a lot of spot tonnages at the moment. This is dragging down freight rates," one broker said. "The banks will have to sort themselves out first before we will see a firm recovery."

The Baltic Dry Index has dropped a further 4% in the past week, and is now 75% below its peak at the end of May. On Wednesday, iron ore shipments from Brazil to China could be booked at $28 per tonne against $36 per tonne a week ago.

"We're seeing drops in rates on all sizes and routes, but we are slowly starting to see a flattening in rates on the China/India route," one source said. Rates from the west coast of India to China were reported at $18-19 per tonne, with vessels available for as little as $8,000 per day.

The sharp decline in rates over the past two weeks has seen activity pick up this week, with more enquiries coming in and bookings being made, the broker said.

"It's only Wednesday, but we see lots of activity this week; there has been a lot of hiring. At the moment, there are more ships than cargoes, which is a great position for a cargo broker to be in. We can basically pick the colour and size [of ship] we want," he said.

A decline in iron ore shipments to China is also playing a role, sources said. "At the moment China is using [iron ore] stockpiles [at ports] to put the pressure on," one source said.

Brazilian iron ore miner Vale is trying to negotiate further increases on its 2008 annual contracts, a move the Chinese steel mills are resisting. Vale is a major driver of the dry bulk shipping sector, with a 36% share in the market for seaborne iron ore. Vale exports 270 million tonnes of iron ore per year, of which about 100 million tonnes go to China.

China renews opposition to BHP-Rio union

Singapore 06 October 2008 05:21

China's steel industry is no more prepared to accept BHP Billiton's bid to take over Rio Tinto, despite Australian authorities concluding the combination would not distort the seaborne iron ore market.

The Australian Competition and Consumer Commission (ACCC) last week said it would not oppose BHP's $132 billion bid, which several national regulators are examining for signs that it could infringe competition laws.

But the China Iron and Steel Assn (Cisa) has no plans to drop its opposition, an industry source close to the industry lobby group told MB.

“Cisa hasn’t changed its stance on this, and maintains its strong opposition to the merger,” the source said.

The ACCC argued that the development of many alternative sources of iron ore would limit the combined company's pricing power in that key market. If BHP is successful in buying Rio Tinto, the new company will supply 38% of China's iron ore imports, based on current levels.

"Chinese companies [will be] more vulnerable in iron ore price talks, and may be forced to pay even higher prices than when the two are individual companies,” the Chinese source added.

Cisa had already submitted a petition from Chinese steel mills to the Chinese authorities, but has not taken other measures, he said.

BHP Billiton's hostile bid has been scrutinised and passed by anti-trust regulators in the United States and in Australia, but still faces probes in the Japan, the European Union, and South Africa.

Xiaoye Wang, a senior adviser to the State Council and National People's Congress, is also arguing that the hostile takeover of Rio by BHP would be harmful and unfair to the global economy, Australia press reported.

“After the merger there will be two competitors only. I believe this is harmful for competition, [and] I hope very much that European regulators will reject it,” he said, according to the Sydney Morning Herald.

BHP needs the two approvals from Europe and South Africa to proceed with the takeover, and a senior official told MB earlier that Chinese authority’s opinion on this also held some power on the whole issue.

Rio itself recently again publicly expressed its resistance to the hostile takeover in spite of the recent financial crisis, reiterating it had been undervalued in the takeover and the Rio “has no need to be bigger just for the sake of size” (MB Oct 3).

The ACCC last week concluded that a combination of BHP and Rio is “unlikely to substantially lessen competition in any relevant market” (MB Oct 1).

Copyright © Metal Bulletin Ltd. All rights reserved.

Freight rates tank over China and Vale

06 October 2008 00:00

Uncertainty about the relationship between Chinese steel mills and Vale and the outlook for Chinese iron ore demand has sent freight rates plunging, market sources said.

Persistent rumours that Brazilian iron ore miner Vale has stopped shipments to China, and that China has halted imports from Vale, have led to freight rates between Brazil and China plummeting to $36 per tonne on Tuesday from peaks of around $100 in June. The Brazilian iron ore miner said it has not received formal notification from any Chinese steel mills regarding a halt in shipments and that shipments to China are continuing.

The Baltic Dry Index, which measures dry bulk freight rates, has declined by about 25% last week and 70% since its peak in June, driven mainly by the uncertainty regarding China, sources said.

One shipping broker said he was “very much in the dark” about the rumours regarding Vale and Chinese mills. “What we hear is that Vale stockpiles are very low; that there are some grade issues where the Fe content is not what it should be; and that, on some of the contracts we’re dealing with, ships are not loaded to capacity.”

Vale is a major driver of the dry bulk shipping sector, with a 36% share in the market for seaborne iron ore. Vale exports 270 million tonnes of iron ore per year, of which about 100 million tonnes go to China.

Other factors affecting the freight market include the national holiday in China and the end of Ramadan, the drop in steel prices and cool-off in demand and the financial crisis, the broker said.

“There are just so many segments affecting how we work at the moment. We’ll have to wait one or two weeks to see what happens,” the broker said.

A researcher at another leading shipping firm said ships are still arriving at Chinese ports with Vale ore, but that the numbers are going down. As the journey from Brazil to China takes around 40 days, “it will take some time to see a reflection [of the rumours],” she said.

It is not only Brazilian shipments to China that are on the decline, but also ships arriving from India and Australia, she said. “There isn’t much domestic demand in China, and we don’t see many fixtures on any of the routes.”

More clarity on the Chinese market is expected next week, when business resumes, she said.

“It is very difficult to say what is currently going on; we’re not sure what the Chinese market is doing. We haven’t seen as many mills re-opening after the Olympics as we thought, and we don’t know what steel prices will do. We’ll have to wait for some updates from the Chinese market,” she said.

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India iron ore exports falling

Mangalore 02 October 2008 09:48

India's iron ore exports has been falling since August as Chinese demand eases and may result in lower exports for the full year, Indian exporters said.

Sinosteel, the second biggest buyer of Indian ore for China, has said it would cut off-take supply from Indian ore by 30%.

"If all the parties do that, then Indian ore exports will come down from 104 million tonnes of 2007/8 to 75-80 million tonnes in 2008/9," said one big buyer of India ore.

"We offer better prices and larger tonnages to some premium mining companies but if market falls in terms of demand and prices one has to take corrective action," the buyer added.

"Chinese buyers of Indian ore in the spot market have been demanding reductions in contractual quantities, cuts in prices depending on changed circumstances in the market for the last four years," a merchant exporter told MB.

"They also have been paying high prices for Indian ore and taking huge quantities when needed, and if they demand cuts in prices and quantities now, it is the free market, and nothing much to complain about," the exporter added.

Iron ore pellet prices have fallen to $115 per tonne fob in September from $236 per tonne fob in August, trade circles pointed out. Steel scrap prices have halved to $380 per tonne cfr.

"It is time for ore prices to crash in the domestic and export market," said one pig iron producer.

"What is their cost of production? It is $10 or less and fob costs less than $30 per tonne. There is plenty of profit for them at present prices," he said.

Iron Ore Index

NOTE: index number delayed by a week
Get the latest Iron Ore Index

Last week	Previous week	% change	$ change
07-11-2008	31-10-2008
61.55	58.67	+4.9%	+$2.88

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Freight Rates

NOTE: freight rates Delayed by a week
get latest freight rates

Type	Route		$ / tonne
Capesize	Dampier (Aus)	Qingdao	$5.15
Supramax	Paradip (In)	Qingdao	$5.70
Capesize	Tubarao (Br)	Qingdao	$11.35

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