Iron ore price rebounds after hitting 7-year low

Iron ore prices bounced back after slumping to their lowest in seven years in December, 2015 on bargain hunting by traders and small steel mills.

The benchmark 62 per cent Fe grade iron ore recovered to trade at $43.11 a tonne, up 13 per cent from its low of $38.30 a tonne on December 11, 2015.

Iron ore miners have cut output globally but its impact is yet to be seen on prices. Experts believe large stock-holding at mine heads coupled with subdued demand from steel mills will not allow iron ore prices to move up for long.

“There are huge stocks lying at various mines in India. In Odisha and Jharkhand 128 million tonnes of iron ore are waiting to be lifted by steel mills. Iron ore consumption is likely to remain subdued, which will continue to suppress its price,” said RK Sharma, secretary-general of the Federation of Indian Mineral Industries.

Before its price started declining, the 62 per cent Fe grade iron ore for delivery in China had shot up to its lifetime high of $192 a tonne on February 17, 2011.

The rebound in iron ore prices has prompted government-owned NMDC to defer price cuts anticipated earlier till January. In December, the benchmark iron ore lumps quoted at Rs 2,100 a tonne.  “A correction was due. But because of the global economic slowdown, sustaining this price level looks difficult,” said Haresh Melwani, chief executive officer, HL Nathurmal & Co, a Goa-based iron ore miner.

Moody's Investors Service said in a recent report that the profitability of Asian steel companies would continue to decline as oversupply and weakening demand in China further weakened prices.  “Slow property investment, modest infrastructure spending and lacklustre manufacturing will reduce Chinese steel demand by about 5 per cent in 2016. Declining Chinese demand will lead to an increase in Chinese steelmakers’ exports, pressuring already low prices,” said Jiming Zou, a senior analyst at Moody's.

Although Indian steelmakers would see their profitability declining in 2016, the fall would be less than that of other Asian steelmakers because of the country's rising demand and captive iron ore mines, Moody’s said.