Steel Products Prices North America

Iron Ore Prices Continue to Slip on Weakness in Chinese Steel Sector

January 23, 2014

HSBC Holdings and Markit released the preliminary (flash) Purchasing Managers’ Index this morning. The reading of 49.6 disappointed the financial markets as any reading below 50.0 indicates the Chinese manufacturing economy is contracting.

Meanwhile, world benchmark iron ore spot prices have been falling over the past few weeks with The Steel Index (TSI) reporting 62% Fe spot prices as being $123.9/dmt this morning and 58% Fe $114.1/dmt. According to TSI, prices are down $8.20 or 6.2 percent on the higher grade ore (62% Fe) and $5.80 or 4.8 percent on lower grade ore during the past four weeks.

To put this into perspective, the high for the year on the two grades was $158.9/dmt (62% Fe) and $143.60/dmt (58% Fe). The lows during the past 12 months were $110.4/dmt and $100.7/dmt.

We asked our iron ore trading contact in Asia to respond to questions we had regarding the recent weakness in the iron ore spot markets in China according to Platts and TSI indices.

“The market has taken a beating for the past week now as you probably know by Platts etc.., but domestically it is worse than what they are reporting as they only report on numbers, not the Physical market. Platts has the market down by USD4.75/mt from Monday to Tuesday this week, but the Physical market domestically is down around USD7/mt. The Platts reduction is based on several lots of Ore sold by Australia the past 2 days and at quite low levels bringing the market down.

“My opinion for 2014 is based on the current Environmental Policies being implemented by the Government and also Banks putting the screws to the Mills on repayment of Loans, as well as whether Mills will be able to repay on the Bonds issued by the Mills which have skyrocketed recently (See Bloomberg News January 21, 2014 – China Billionaire’s Steel Bond Fall Flags Industry Smog Woes).

“With A LOT of mills already in Financial trouble exacerbated by the new Environmental Regulations and Weak Steel prices, it is going to be touch and go from here on John. If Mills are forced into closures or mergers, then the quantity of Iron Ore is definitely going to be affected and pressuring prices downwards. The Environmental Regulations will also put pressure on Iron Ore quantities and prices, but another issue no one is touching on is the Domestic production of Iron Ore which will most probably be AXED or heavily reduced due to its bad quality and affect on emissions.

“We already see the Lower Grade Ores being shipped into Southern China where the regulations are less strict and leaving the Northern Mills with less opportunity on Cheap Ore imports for mixing with their Higher Grade, Higher Priced Ores. On the whole, there will be reductions on capacity in 2014 and with increased Ore production in Australia and Brazil, prices will have to come down. India is still a question on whether the Government will ease on the Exports as there is 11 million tons waiting to be exported in India right now.

“As for Steel prices, as we approach Chinese New Year, no new prices have been released and we have to wait and see when China returns on the 9th of February.”