China holding 120m tonnes of 'high-priced' iron ore

Singapore 12 December 2008 05:11

China is holding about 120 million tonnes of iron ore inventory bought at previous record high prices, said Li Yizhong, minister of industry and information technology, citing China Iron & Steel Assn (Cisa) figures.

"The Chinese steel industry imported massive volumes of high-priced iron ore last year and at the beginning of this year, when prices surged. According to Cisa, steel mills are holding 30 million tonnes of this high-priced iron ore while 90 million tonnes are stacked up in ports," Li told reporters at a press conference on Friday that was transcribed by state news agency Xinhua on its website.

"I also hear that 100 million tonnes have yet to be delivered on long-term contracts to suppliers [in China]. Including this, [the total] is 220 million tonnes," Li said.

There is enough steelmaking raw material to last China for the next six months, he added.

Chinese mills settled 2008 benchmark iron ore prices 65-71% higher with Vale, paying 118.98-125.17 cents per dmtu fob, and 85% higher with Rio Tinto, paying 144.66 cents per dmtu for fines and 201.69 cents per dmtu for lump, same as for BHP Billiton.

Since then, spot iron ore prices have plunged to $74-75 per tonne cfr for Indian fines of 63.5% ferrous content and around $55 per tonne cfr for fines of 59% ferrous content.

To help the steel industry through the crisis, Li said his ministry has proposed raising export tax rebates by a few percentage points for high-end steel goods, while continuing to discourage the export of low-end, energy-guzzling steel goods.

Also, China has overcapacity and may produce only 480-490 million tonnes of steel this year out of a capacity of 600 million tpy, he said.

"We can't keep patching up the same old stall; the key is to innovate through technology," Li said.

"Next year, if [our ministry does] allocate $15 billion to support technology upgrades, the emphasis will be on the steel industry," he added.

Lastly, China's steel industry needs to continue to toss off outdated capacities and achieve greater concentration, Li said.

"There are about 1,000 steel mills in China, and the industry concentration is too low. Let's take advantage of the financial crisis and let those little steel enterprises that should close down, close down, and let those that should merge, merge," he said.

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No early end likely for 2008 iron ore contracts, Chinese market sources

Singapore 09 December 2008 05:14

Chinese steel mills are unlikely to push through a request to prematurely end the 2008 iron ore contracts on December 31, instead March 31, said market participants.
 
"I heard that China Iron & Steel Assn (Cisa), mentioned such a request, but I doubt it will become a reality in 2009... I do not think the three major iron ore suppliers, after agreeing to shipment deferrals, will agree to another change that is against their interests," said Xu Xiangchun, a steel analyst in Beijing.

Several Chinese steel mills have reported reducing their iron ore shipment volumes or deferring shipments due to sharply weaker demand for steel products in recent months, and heavy production costs from record-high benchmark price settlements for 2008 supplies, according to market participants.

Xu understood that the Chinese request to prematurely end the annual contract was mainly to align the contract duration with the steel mills' fiscal year, which starts on January 1, as in Europe, instead of continuing to follow the Japanese fiscal year, which starts on April 1.

"I believe both parties will only agree to the change when the market is steady, not when it is riven with uncertainties and price turbulence, as it is now," Xu added.

Officials from Cisa could not be reached for comment, but Cisa secretary general Shan Shanghua has said as far back in October that Chinese steel mills would ask for manifold changes at the benchmark talks.

Proposed changes included settling prices quarterly, rather than annually, settling quantities in a fluid range rather than a set volume, and combining benchmark and spot prices, Shan said at an iron ore conference in Qingdao city, Shandong province (MB Oct 23).

An official from China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, the association for the all of the country's licensed iron ore importers, said he had heard of no imminent changes to the contract duration.

"The annual price talks are proceeding as per usual and I have not heard of any such immediate change. Under such circumstances, I think it would be a hasty move and may backfire, as no one knows for sure yet how the market will develop," he said.

An iron ore official from a major steel mill in central China shared the sentiment, and also denied hearing of any such imminent change.

"What I have heard is that both parties are not so eager to proceed with the talks this year, as uncertainties loom over the market, and every participant is waiting for clearer market signs before deciding on their stances in the talks," he said.

Chinese market participants including steel mill officials, iron ore traders and steel analysts anticipate that the overall picture will become clearer in the first quarter of 2009.

Chinese steel mills and the three major iron ore suppliers — BHP Billiton, Rio Tinto and Vale — started the 2009 benchmark price talks in late October, and so far, no concrete progress has been heard.

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India withdraws fines export tax, cuts lump export tax to 5%

Mumbai 09 December 2008 05:14

India has withdrawn the 8% export duty on iron ore fines and reduced the export duty on lump ore to 5% ad valorem, from 15%, said the finance ministry.

The new duty rates were effective from December 7, 2008.

The move by the government to cut export duty on fines is expected to bring some relief to Indian iron ore exporters.

Exports will pick up in the coming months as Indian iron fines become more competitive in the international market, said Federation of Indian Mineral Industries (Fimi) secretary general R.K. Sharma.
 
The export duty on lump should also have been eliminated, he said.

However, the government have kept the lump export tax to retain a check on lump exports and for the domestic steel industry to benefit from lump production, said an official at  a private iron ore miner.

The latest change is part of a flurry of changes in recent months as the government tries to finetune the export regime.

On October 31, export duties on iron ore fines were reduced from 15% to a specific duty of Rs 200 ($4) per tonne. On November 10, this was altered to 8% ad valorem.

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Chinese iron ore traders concerned about spot price sustainability

Singapore 05 December 2008 04:50

Chinese iron ore traders are concerned about spot price sustainability as recent steel output increases may lead to another round of steel price slumps.

China's iron ore spot prices have seen a rebound since the beginning of November and have been stabilising in the past two weeks after a rapid decline from $185-188 per tonne cfr in late July.

This week, imported fines with 63.5% ferrous content continued to strengthen, transacting at $72-74 per tonne cfr, slightly higher than last week's $72-73 per tonne cfr.

But market participants worry that the recovery may not be sustainable.

"Many Chinese steel mills have been either resuming or increasing production in the past few weeks, encouraged by very modest domestic steel price increases, but I don't see a great pick-up in domestic demand for steel products. I'm concerned about what will happen if domestic steel prices slip again," an iron ore trader in Beijing said.

Other market participants agreed.

"I feel that the optimism is confined to just the iron ore miners and steel plants. Steel end-users including auto and electrical home appliance manufacturers and shipbuilders remain sullen, so I do not know how long this rosy situation will last," an iron ore trader in Shandong province said.

The prevailing market sentiment in China is that for steel mill, the most difficult times have yet to arrive.

So, iron ore market participants are understandably anxious about how the iron ore spot market will develop in the next few months.

China Iron & Steel Assn (Cisa) has said that the outlook will become clear only from next March when both the 4 trillion yuan ($582 billion) economic stimulus package and steel export tax revision take the full effect.

Over the week, demand for spot iron ore remains promising, with increased transactions and the recent terrorist attacks in Mumbai pushing up freight charges between India and China to $11-12 per tonne, from below $10 a week ago.

Lower grade fines with ferrous content below 60% are more popular in the market. Offers for 59% Fe content fines have increased to $57-58 per tonne cfr from last week's highest $55 per tonne cfr. Transactions are concluding at $52-54 per tonne cfr, higher than last week's $50-52 per tonne cfr.

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***STEEL SUCCESS STRATEGIES EUROPE: Iron ore benchmark system could collapse - Beddows

Paris 03 December 2008 11:30

The iron ore benchmark pricing system may partially collapse due to dramatic falls in spot prices, weak demand and contractions in production predicted over the next year, Rod Beddows of Hatch Corporate Finance told delegates at MB’s 6th Steel Success Strategies conference on Wednesday.

“We may end up with no benchmark price. While this idea strikes fear into many, there are other ways of setting prices, such as the spot market, indexes, bilateral negotiations [and] futures. Lots of other markets have no benchmark price,” Beddows said.

It is “wishful thinking” on the part of the steel companies that iron ore prices will resurge once the impact of production cuts enters the supply chain and when customers revive in terms of credit and financing inventory, he added

Beddows put the odds on the iron ore benchmark pricing system imploding at 20% but said that leading steel industry participants will not want to see dramatic raw materials price falls

These major players will have structures in place to prevent this, he added.

“[Lakshmi] Mittal, the largest shareholder of the largest steel company, won’t want to see iron ore prices decline and lose even more money,” Beddows said.

Forecasters of iron ore prices for the next year have changed their predictions for benchmark prices to falls of between 10% and 40% on last year’s levels from a range of zero change to a 20% rise.

But uncertainty was the underlying theme of the future of raw materials pricing and of the steel industry as a whole, with many of the conference speakers shying away from giving forecasts.

“I’m not offering forecasts but a perspective for the future,” said John Kopfle, director of corporate development at Midrex Technologies.

“Supply/demand analysis is viewed as more useless than normal in the current climate,” added Jim Lennon, executive director of Macquarie Bank Ltd.

Meanwhile, Beddows summed up the general market sentiment: “This is not a time for forecasts; it’s a time for fear.”

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***STEEL SUCCESS STRATEGIES EUROPE: Benchmark system still valid but needs modification

Paris 03 December 2008 13:37

The iron ore benchmark system may need modifying from its present incarnation as iron ore spot prices have dropped below annual contract levels, global production is being slashed and the worldwide economy is in recession, speakers at MB’s 6th Steel Success Strategies conference said on Wednesday.

“Most certainly there is a future for annual benchmark negotiations. It is one of the only tools available to the industry for hedging supply and price risks of raw materials,” Shoeb Ahmed, commercial director of Steel Authority of India Ltd (Sail) told delegates.

But he added that the system “needs modification”.

“Sail feels it could continue with long-term contracts but how are they to be executed in the current climate? Should we have quarterly or half-yearly contracts?” he asked.

A movement to spot pricing in iron ore and/or quarterly pricing cannot be ruled out, according to Jim Lennon, executive director of Macquarie Bank Ltd, but he added that “this will not be the general rule”.

“Will iron ore prices be set at levels next year that lead to projects cancellations or will they be set at levels to give incentive to keep investing [in iron ore sourcing]?” he said.

Lennon added that there may be some “carryover” tonnages from annual contracts set at the start of 2008 that should be delivered at the same prices in 2009. Next year’s iron ore prices might factor in some compensation in the event of these volumes being deferred or cancelled, he said.

“The prices for raw materials are under sharp downward pressure going into 2009, but the drops may not be as large as expected due to the carryover tonnage deals and other modifications,” Lennon told delegates.

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Cheaper Australian fines not expected to dampen Indian prices, sources

Singapore 27 November 2008 08:57

Market participants do not expect cheaper Australian iron ore fines to drag down Indian spot prices in the Chinese market.

Australian iron ore fines with 62% ferrous content, with some from Rio Tinto and BHP Billiton, are selling into China at $60-62 per tonne cfr, whereas Indian iron ore fines with 63.5% ferrous content are selling at $72-73 per tonne cfr, up from last week's $68-72 per tonne cfr, according to market participants.

"Australian iron ore fines has its sales limitation in that it is mainly transported with Capesize vessels, so anyone who wants to buy, has to buy in large quantities, whereas Indian supplies are more flexible in quantity, so their markets are a bit different," an iron ore trader in Shanghai said.

Other market participants agreed.

"Under present market conditions, Chinese steel mills and trading houses are still acting very cautiously. Besides, the Australian shipment period is longer than for Indian cargoes, so being cheaper does not indicate a definite advantage in the market," said an iron ore trader in Shandong province.

Meanwhile, cheaper Australian iron ore fines and still-high port inventories are expected to prevent Indian iron ore spot prices from rebounding too high too fast, according to market participants.

"Steel mills will make price comparisons, and they will turn to other available sources if Indian offers are beyond their acceptance, and so far, that has not been the case," an iron ore trader in Tianjin said.

Indian iron ore offer prices for 63.5% grade have reached $75 per tonne cfr, slightly higher than last week's $70-74 per tonne cfr, partly due to higher freight charges of $10-12 per tonne between China and India.

The market has been rising in the past three weeks and market participants continue to believe that iron ore spot prices will move within a reasonable range, and that sharp inclines or declines are unlikely.

"There are still uncertainties about demand and the economy in the world and in China, and the past few weeks' positive movements have not been enough to support a price surge," an iron ore trader in Beijing said.

China's customs statistics showed that it imported 30.62 million tonnes of iron ore in October, down 22% from September, but up 3% from a year ago.

In the year up to October, China imported 376.69 million tonnes of iron ore, up 20% year-on-year, of which 155.41 million tonnes were from Australia, up 30%, 85.23 million tonnes from Brazil, up 8%, and 76.74 million tonnes from India, up 18% year-on-year.

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Cisa cheers BHP's dropped bid but impact on benchmark talks uncertain

Shanghai 26 November 2008 03:59

China Iron & Steel Assn (Cisa) said it was "good news" for China's steel industry that BHP Billiton has abandoned the bid for Rio Tinto.

"Giving up the merger of Rio is good news for the Chinese steel industry" because it would have strengthened the monopolistic power of the major iron ore suppliers, Cisa secretary general Shan Shanghua told MB.

One more or one less supplier "may not make any essential difference in a sellers' market, but it means a lot to buyers in the current buyers' market, as the competition lends more leverage to buyers", Shan said.

Australia's third largest iron ore producer Fortescue Metals Group (FMG) agreed. "It probably suits the Chinese that it has happened," said company secretary Rod Campbell.

"It is still hard to say how the news will impact the benchmark price negotiation, but I expect iron ore prices [for fiscal year 2009] will drop by a big extent," Shan said, adding that steel prices have fallen to 1990s levels.

However, analysts do not expect BHP's dropped bid for Rio to make a splash at the upcoming iron ore benchmark price negotiations.

"We don't think this is major good news for Chinese mills... because it won't cripple the monopolistic position of the three major iron ore providers. Thus, although this is good news for Chinese mills, any benefit will not be obvious," said Haitong Securities steel analyst Liu Yanqi in Shanghai.

"I don’t think BHP's move will have a substantial effect on the Chinese steel industry as [the three main] iron ore suppliers will always keep their monopolising status," agreed David Du from Sinolink Securities.

"Prices are probably going to be reduced 10%, 15%, 20% or so. It won't change very much as underlying demand is there, although it is pretty much disguised at the moment," said Ord Minnet analyst Peter Arden in Melbourne.

"The Chinese will probably want to be supporting Rio [in interests of keeping the balance at the iron ore talks]. If they play hardball and drive down the settlement, it will be much harder on Rio than on BHP as Rio is a much less viable position," said Arden.

Rio, in which Chinese state-owned Chinalco has a stake, has debts of about $42 billion compared with BHP's $6.3 billion at October 31 (MB Nov 25). Rio has also been distracting from tidying up the loose ends of its merger with Alcan by its fight to defend itself from BHP's bid, said analysts in Australia.

In contrast, analysts in China harbour hopes of a greater fall in the benchmark price as a result of market conditions.

"Iron ore benchmark prices are likely to drop by 20-30% for next fiscal year amid the gloomy economy," Du said, echoing previous forecasts and preductions by Chinese market participants that have put the potential price cut at 20-60%.

Central Securities steel analyst Julius Hu in Shanghai expects the prices to "definitely” drop by more than 20% while Haitong Securities' Liu expects a price fall of at least 30%.

"China's steel mills have halted iron ore imports with huge stocks sitting at ports and increasing production cutbacks, and they may further cut production by 5% next year, which will affect iron ore benchmark prices for next year," said a steel analyst in Shenzhen.

"It is not impossible for China to stop buying iron ore from BHP in the future as China is rapidly developing a large number of iron ore mines in Australia now," said the analyst.

While market watchers in Australia were taken by surprise by BHP's dropped bid for Rio, their counterparts in China claimed they saw it coming.

"China, Japan and South Korea are three major buyers of Australian iron ore, and we have persistently opposed the merger [as has] the European Union... so we have remained confident that the merger would be prevented from happening," said Cisa's Shan.

"This is not surprising as the European Union has opposed monopolisation. Besides, I doubt BHP has sufficient cash to acquire Rio Tinto at the moment," said Sinolink Securities' Du.

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BHP Billiton drops $66 billion bid for Rio Tinto

Singapore 25 November 2008 08:53

BHP Billiton has dropped its $66 billion bid for Rio Tinto due to "unacceptable" risks from deteriorating global economic conditions and sharply lower commodity prices.

"Recent global events and associated falls in commodity prices have... altered risk dimensions," said ceo Marius Kloppers in a statement released on Tuesday afternoon.

"Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased risks to the shareholder value to an unacceptable level," he said.

As a result, the completion of the offer for Rio would not "be in the best interests" of BHP shareholders, the global mining giant said.

The company had not changed its view about the "basic industrial logic" of the bid, said chairman Don Argus.

"We have concerns about the continued deterioration of near term global economic conditions, the lack of certainty as to the time it will take conditions to improve and the risks that these issues imply for shareholder value," Argus said.

Given the economic climate, BHP does not expect to be able to achieve fair value for the divestment of any assets required for the merger to proceed, such as the divestment of iron ore and metallurgical coal assets to remedy European Union anti-trust concerns, said BHP.

Other concerns that constituted unacceptable risk were the prospective debt level given the difficult economic conditions and the ability to divest other non-core assets from Rio's earlier merger with Alcan.

BHP said it intended to write off the $450 million incurred in progressing the merger over 18 months.

At a conference call, Kloppers brushed aside speculation that Chinalco may have played a part in the dropping of the bid, or that BHP's next takeover target was Fortescue Metals Group.

BHP's immediately priority was to "flawlessly execute" the wrapping up of the abandoned bid, he said.

A senior source in the Australian iron ore industry said BHP's move was unsurprising.

"In the current conditions, even the biggest companies are struggling," the source said on the sidelines of MB's Australian Iron Ore conference in Perth. "When you look at the difficulties in raising or paying off debt at the moment, you had to think, how are they going to be able to do this? Rio Tinto is already trying to pay off the debt from Alcan, they wouldn't want to take that on in the current market."  

BHP and Rio are two of the three largest iron ore suppliers in the world and the dropped merger comes ahead of what are widely expected to be tough negotiations for the 2009 iron ore benchmark price.

Predictions and forecasts for the price decrease range from 20-60% as iron ore prices scrape the bottom of the spot market.

However, customers in China, the fastest growing consumer of iron ore, are expected to be among the first to rejoice.

Imports from Australia make up 41% or 377 million tonnes of China's total iron ore imports in the first 10 months of the year. Brazilian imports were a pale second with 23% or 85 million tonnes, according to Chinese customs.

BHP and Rio are expected to ship around 300 million tonnes of iron ore this year. The two are also major producers of copper, aluminium, nickel and other mineral resources.

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***MB AUSTRALIAN IRON ORE CONF: China to import '85-86m tonnes' from India in 2008

Perth 25 November 2008 09:48

China is expected to import 85-86 million tonnes of iron ore from India in 2008 despite sullen market conditions in recent months, says Sachin Sehgal, Essel Mining's chief representative for China.

This would be around 7-8% higher than last year.

"Despite the hard situation in the past two months, China's iron ore imports from India are expected to increase in the last two months with stabilising iron ore spot prices and domestic steel prices, so I expect the import volume from India will be around 85-86 million tonnes for this year," said Sehgal at MB's 2nd Australian Iron Ore Conference in Perth.

Essel Mining is a private iron ore miner in India.

China imported 76.74 million tonnes of iron ore from India for the first 10 months of the year, up 18% year-on-year, although imports from India for October fell a steep 24.29% month-on-month to 3.71 million tonnes, according to Chinese customs.

Iron ore market participants have noted that the spot iron ore market, in which India has a significant role, has shown signs of recovery since early November.
 
Although still a far cry from $185-188 per tonne cfr in July, India's offers have risen to $75 per tonne cfr for fines with 63.5% ferrous content, from a low of $60-68 per tonne cfr at end-October, and enquiries have also increased, market participants reported.

China imported 79.4 million tonnes of iron ore from India in 2007, accounting for 20.73% of China's total.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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. 

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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). 

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