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Power Rationing in Selected Iron Ore Producing Regions Exerts Limited Impact on Market
Dec 20,2011 11:45CST
smm insight
Source:SMM
Possibility for iron ore prices to fall sharply is low, and iron ore prices will be largely stable in the short term.

SHANGHAI, Dec. 20 (SMM) -- According to data from National Development and Reform Commission (NDRC), China’s unit GDP energy consumption only slipped by 1.6% during the first three quarters of 2011. According to Resource Conservation and Environmental Protection Targets 2011 released by NDRC in March 2011, China’s unit GDP energy consumption should slip by 3.5% in 2011. Since the deadline was approaching, some regions began to restrict electricity supply for some high energy consuming industries, with mining industry heavily affected.

In December, power rationing already reported in Yishui County of Shandong province and Qinglong in Qinhuangdao. It is reported that power rationing at mine operators in Yishui County in Shandong province will last from December 12th to December 31st 2011. Iron ore capacity in Yishui County is 1.36 million mt/yr, and the 20-day-long power rationing is expected to affect 74,500 mt of iron ore output. Mine operators in Qingling of Qinhuangdao began to halt production in early-December. It is reported rolling blackout was implemented in Qinglong, and production stoppage period will vary from one month to three months at different mine operators. Iron ore capacity in Qinglong is 7.5 million mt/yr, and the power rationing is expected to affect 625,000 mt of iron ore output if production is halted for a month.

Apart from the above regions, beneficiation plants in Huai’an, Xuahua, and Wanquan counties in Zhangjiakou already halted production in November, and the specific date for production resumption is unknown. Iron ore capacity in the above three counties is 4 million mt/yr, and the power rationing is expected to affect 330, 000 mt of iron ore output if production is halted for a month. Steelease believes that power rationing in 2011 will have limited impact on market compared to last year. First, only three regions are affected by power rationing at present, but almost the entire Hebei province was affected by power rationing last year. Second, many independent beneficiation plants already halt production as steel mills prefer to use imported iron ore production by virtue that imported iron ore prices are lower than domestic iron ore price. Third, due to sluggish demand, current operating rates at iron ore producers are able to meet market demand, which will not affect iron ore prices.

Iron ore prices in Shandong province once advanced for two weeks due to limited supply caused by power rationing, but prices began to fall due to sluggish downstream demand. Generally speaking, although supply of iron ore is insufficient, demand for iron ore is also sluggish. Therefore, possibility for iron ore prices to fall sharply is low, and iron ore prices will be largely stable in the short term.
 

iron ore price; power rationing; Shandong
Hebei;

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