Posted on 02 Sep 2009
Spot iron ore prices in China extended their slide, falling 9 percent in the past week to a more than two-month low on Tuesday and towards the level of annual term prices that Chinese mills reject as being too high.
Spot prices of iron ore, a key steelmaking ingredient, have gyrated recently -- doubling in four months from April lows and then losing about a quarter of their value in less than one month, as China, the world's top steelmaker, moves to rein in credit lending and its massive steel overcapacity.
The correlation between iron ore prices and Chinese steel prices has also increased sharply, with steel prices posting their biggest weekly drop since October after a months-long rally to a 10-month peak, weighed down by growing uncertainty over the sustainability of
Indian ore of 63/63.5 percent iron content for future delivery was quoted at $84-$87 a tonne including freight costs, versus $93-94 quoted a week ago, while ores for immediate delivery were bid at 710 -730 yuan a tonne, industry consultancy Mysteel said on Tuesday.
"Some merchants are lowering their offering prices but there are simply no takers. People are waiting for a clear direction on steel prices and demand," said a Shanghai-based trader with a major private-sector trading house.
"Prices will probably fall deeper to a level that is slightly higher than the long-term prices as people are talking about an oversupply in the market," he said.
Prices collapsed by a quarter from this year's peak of $115 a tonne hit in early August after staging a solid rally from a low of $58 in April, driven by China's record steel production running almost at full capacity.
The steep run-up earlier this year to sharply above the longer-term contract prices of around $75 including cost and freight has undermined China's efforts to secure a deeper price cut for 2009 term iron ore prices than a 33 percent reduction that other Asian rivals had agreed.
Any fall below the benchmark prices would now help China restore its lost bargaining power in the protracted annual iron ore negotiations, although miners are refusing to give up their "take it leave it" stance for fear of angering other Asian customers who have signed the deal.
Falling freight rates as a result of easing port congestion problems in
But some analysts caution that iron ore prices are unlikely to fall sharply further than benchmark prices, as demand from China steadily grows: Iron ore imports from Japan, the world's No.2 steel producer, rose in July to the highest rate since January to 8.5 million tonnes, although it still remains down 27 percent from a year ago.
Baoshan Iron and Steel Co,
Miners, including
They had said that the provisional prices matched terms that they were demanding and have signed with Japanese steel makers in annual price talks.
