Poor China offtake hits iron ore prices

Currently, iron ore fines (below 64 per cent of iron content) is quoted at $93 per tonne as the Chinese demand has gone down dramatically because of two major factors. Firstly, the country has closed 23 steel manufacturing units in and around Beijing and Shanghai because of pollution threat over Beijing Olympics.

These steel facilities have been closed for three months and will probably be re-started in September after the Games are over.

Secondly, the Chinese ports are clogged with ships awaiting unloading. Therefore, fresh orders have dried up. This opens room for the Chinese importers to re-negotiate prices for spot as well as long term supplies.

Imports from Australia, Brazil, South African and India have completely stopped as the Chinese traders are manoeuvring for price advantage.

Importantly, the Chinese government, according to market watchers, have intentionally delayed unloading of iron ore to open a fair chance to re-negotiate the price for spot deals. However, the long term deals from exporting countries, including India, have not been impacted at all, Haresh Melwani, an exporter from Goa, said.

According to RK Sharma, Secretary General of Federation of Indian Mineral Industries (FIMI), ships containing 60.2 million tonnes of iron ore have clogged Chinese ports on the west coast. This is equivalent to two months of Chinese ore consumption. This also means the country need not import until July end.

"Exports from India decline every year during monsoon. But, this year, we are expecting very poor offtake from China even after the closed steel units resume operations," said Melwani.

Recently, China had issued directives to its steel mills not to sign long term deals at the current high prices as the country was aiming to achieve a fall in prices by 20 per cent.

Indian steel producers, ironically, procure only lumps (above 63 per cent of iron content) while fines (below 63 per cent) are exported. Provisional data indicate a marginal decline in ore exports to 93 million tonnes in 2007-08 from 93.7 million tonnes in 2006-07.