Iron ore prices declined 11 per cent in the past week due to a drastic decline in demand from China, the world’s largest consumer of the steelmaking raw material.
According to data compiled by the Steel Index, a leading independent online weekly for ferrous metals, the price of iron ore is $130.80 a tonne, the lowest since November 8. This decline almost set off the gain witnessed in October.
“The poor Chinese manufacturing data indicate overall industrial activity in the world’s second largest economy has taken a hit due to the ongoing uncertainty in the global economy. Most of the steel mills in China have finished re-stocking,” said Haresh Melwani, CEO of H L Nathurmal & Co, a Goa-based iron ore miner and exporter. Highlighting slow demand for steel in China, the world’s biggest consumer and producer of the building material, average daily output of crude steel stood at 1.66 million tonnes (mt) over November 11-20, unchanged from the previous 10 days, according to data from the China Iron and Steel Association.
Overall buying activities from Chinese mills are likely to remain under pressure until December-end due to poor demand from construction sectors. Since, consumption from construction and manufacturing sectors is shrinking sharply, indicating a slowdown in the overall economy, the consumption of iron ore is likely to remain low.
“The situation in Europe and the world has significantly worsened over the past few weeks. The economic doldrums have spilled over in Asian economies like India and China. Unless Africa and West Asia emerge to compensate the consumption loss elsewhere, the growth in steel consumption is likely to remain low,” said an analyst.
“The business environment in the iron ore sector is unfavourable. Even legal existing mines in India are currently shadowed with suspicion. There is nervousness for the present and uncertainty for futures,” Melwani added.
More From This Section
India’s steel demand is estimated to grow at eight-nine per cent this year, despite a slowdown like situation in construction and infrastructure sectors. According to the ministry of steel, additional production capacity of around 12 mt is set to be installed next year, which is likely to be consumed fully.
India’s total iron ore shipment, however, is expected to fall drastically to 60-65 mt during the current financial year, as against 97.6 mt in the previous year. Shipments from Karnataka, source of a quarter of India’s annual exports, have been banned since July 2010 and have yet to resume, despite a Supreme Court order allowing shipments from April 20.
China’s manufacturing recorded the weakest performance since the global recession eased in 2009, underscoring the case for monetary stimulus as Europe’s crisis weighs on the world’s second-largest economy. Factory output, which accounts for 40 per cent of gross domestic product, hit its weakest pace in a year in October, though expansion in the first 10 months of 2011 averaged 14.1 per cent.
Total output may also decline 50 per cent this year from 212.6 mt during the last financial year. Meanwhile, industry body Assocham urged the government to allow steel companies to own captive iron ore resources for sustainable growth and the country’s infrastructure development. All the integrated steel plants capable of undertaking viable, scientific and efficient iron ore mining should get captive mines, it added.