Spot iron ores prices, which were subdued for quite some time, has picked up its pace since beginning of June. Chinese steel mills had aggressively run down iron ore inventory levels during May, owing to speculation that power shortage would dampen the iron ore prices. The prices had steadily gone down in the Month of May as Mills restrained from buying and keeping the production level under par. Chinese mills are yet to secure supply commitments from Indian suppliers for the third and fourth quarter of 2011. The current upward movement in prices have created urgency with the steel mills to secure supplies the earliest at the current market price.
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With the onset of monsoon in India, the supply of iron ore will largely get affected for the Month of June, July and August. The Indian government measures to scrutinize the existing mining operations and introduction of stringent rules for mining and transportation has reduced the availability of material to a large extend throughout this year. The supply from Karnataka is yet to be started due to the state government directive, adding more pressure on the supply side. Goa port is closed for the Monsoon until September, cutting down the low grade ore supply. Goa mines are predominantly of low grades and cater to grades from 45% to 60%. As prices move towards north, mills tend to procure a mix of low and grade to normalize the costing.
Traders restrained from taking positions on spot cargos in the month of June due to lack of purchase orders from the Chinese mills. But both domestic mills and overseas mills have given aggressive bids for purchases since the 1st week of June. This buying spree is expected to last till September. The short supply and the inventory demand would push the iron ore price to further higher levels.
In spite of all the odds in favour of higher iron ore prices, the power shortage and tighter credit conditions still may play a major role in arresting the upward price movement.
CHINESE PORT STOCK UPDATE
Chinese port stocks have been swelling for over a month owing to a lack of buying activity and increased supply. According to China Customs’ Statistics iron ore imports into the country during May increased 0.8% month-on-month to 53.3m tonnes.
China's daily steel production in the last 11 days of May stood at 1.915m tonnes, a decrease of 3.5% compared with the previous 10 days when daily output rose to a record 1.984m tonnes.
IRON ORE PRICES AND TREND
Chinese spot prices remained stable this week after the last week rally. The Indian fines with grade 63% has been traded in the range of $179 to $181. Australian Iron had the maximum increase in price compared to Brazil and Indian ores.
The iron ore prices are expected to hold steady with a slight upward movement throughout June.
The CFR price for 63% grade to China is expected to be in the range of $183 to $186 by the end of June. The iron ore swap, which is traded in SGX and iron ore future, which is traded in Indian exchanges (ICEX and MCX) also posted healthy gains with increased volume.
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FREIGHT
Capesize and Supramax rates, which were moving north for the past few weeks, has lost its steam since the 1st week of June. The freight market is not showing any signs of strength. All major routes in China had a drop in freight rate, which pushed the freight index further down. Short term chartering did not fare well in the last couple of weeks. The only positive signs for the freight would be that the Chinese dry bulk purchases are picking up. The Chinese iron ore import for the month of May amounted to 53 million MT, which is a healthy year-on-year increase. The freight rate is expected to be stable for the third week of June and might have a slight upward movement by the end of June.
Report compiled by Maya Iron Ores Pvt Ltd.