Iron Ore-Spot Prices Respond to China Demand Signals-Shanghai Metals Market

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Iron Ore-Spot Prices Respond to China Demand Signals

Industry News 09:57:07AM Feb 02, 2012 Source:SMM

BEIJING, Feb 1 (Reuters) - Chinese spot iron ore prices rose on Wednesday as traders drifted back to the market following the new year break amid signs that demand could start to pick up in the coming weeks. 

Industry consultancy Umetal said Pilbara fines with 61.5 percent iron content were being offered at $141-143 per tonne cost and freight on Wednesday, up $2 from Tuesday. 

Trading sources said activity was resuming after a slow start, with an Australian miner closing a deal for a shipment of 63 percent iron ore at a price of $146.6 a tonne on Tuesday.   

"I don't think traders have been urgently rushing back after the Chinese new year but things are picking up, with deals here and there, and I think there are signs that demand will improve," a trader based in eastern coastal Zhejiang said. 

All the major indexes made gains on Tuesday, with the Steel Index's 62 percent gauge .IO62-CNI=SI rising $2.50 per tonne to $142.40 by the end of the day, up 1.79 percent.

"It still seems to be mostly traders bidding, but there is material that is being sold on to a major mill that is restarting blast furnaces that were shut down the week before," said Graeme Train, analyst with Macquarie in Shanghai. 

"I guess the view is now that conditions are improving and there is reason to restart capacity. The mills are generally very cautious and I don't think they would have done it unless there is good reason," he said.  

In a Tuesday report, the China Iron and Steel Association said high port stocks made an increase in imported ore prices unlikely in the short term. It said prices remained too high relative to actual steel demand in China.  

Furthermore, there was little sign the government was about to relax its tight monetary regime and steel mills and trading firms were also under pressure to pay back loans. 

But Train said there was enough impetus on the market to improve even without positive policy signals, though the "upside" would not be spectacular. 

"The market has come round to the idea that (a policy relaxation) is not going to happen -- monetary supply has improved quite a lot, growing 20 percent year on year in January, so liquidity has sorted itself out." 

"That means real demand can come back to the market – you just don't get the big apparent consumption surge that would come from a very strong policy signal."   

VALE MEGASHIP SNUB   

The Ministry of Transport said on Tuesday that it would not allow ships exceeding approved capacities to dock in its ports, a move that will prevent Brazil's Vale from sending its giant vessels to China, its biggest market.  

Analysts suggested the move was primarily motivated by a desire to protect China's struggling shipping sector, particularly listed firms like Cosco. 

"They are clearly trying to help companies survive their losses and protect their shares from being subject to 'special treatment' on the stock exchange," said a shipping futures broker based in Hong Kong. 

"There is a lot of politics being played out and it is possible that China is trying to get more pricing power over Vale's ore by refusing them entry, but the main reason is to help the shipping companies," he said.   

Some traders have said that Vale sometimes struggled to persuade Chinese buyers that Brazilian ore was a better option than that from Australia, but its plans to boost market share in the world's biggest iron ore market were not expected to suffer unduly as a result of Tuesday's decision, said Train. 

While the decision to ban its ships from Chinese ports might add a little to Vale's costs, Vale is still in a position to pursue its overall strategy for the Asian market.   

"For Vale, it has never been so much about the cost per tonne as being about maximizing production capabilities. They need to get ore as quickly as possible from the western hemisphere to the eastern hemisphere, and they can still do that so this is not that big a deal for them." 
 

Key Words:  iron ore  iron ore price  steel demand 

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Iron Ore-Spot Prices Respond to China Demand Signals

Industry News 09:57:07AM Feb 02, 2012 Source:SMM

BEIJING, Feb 1 (Reuters) - Chinese spot iron ore prices rose on Wednesday as traders drifted back to the market following the new year break amid signs that demand could start to pick up in the coming weeks. 

Industry consultancy Umetal said Pilbara fines with 61.5 percent iron content were being offered at $141-143 per tonne cost and freight on Wednesday, up $2 from Tuesday. 

Trading sources said activity was resuming after a slow start, with an Australian miner closing a deal for a shipment of 63 percent iron ore at a price of $146.6 a tonne on Tuesday.   

"I don't think traders have been urgently rushing back after the Chinese new year but things are picking up, with deals here and there, and I think there are signs that demand will improve," a trader based in eastern coastal Zhejiang said. 

All the major indexes made gains on Tuesday, with the Steel Index's 62 percent gauge .IO62-CNI=SI rising $2.50 per tonne to $142.40 by the end of the day, up 1.79 percent.

"It still seems to be mostly traders bidding, but there is material that is being sold on to a major mill that is restarting blast furnaces that were shut down the week before," said Graeme Train, analyst with Macquarie in Shanghai. 

"I guess the view is now that conditions are improving and there is reason to restart capacity. The mills are generally very cautious and I don't think they would have done it unless there is good reason," he said.  

In a Tuesday report, the China Iron and Steel Association said high port stocks made an increase in imported ore prices unlikely in the short term. It said prices remained too high relative to actual steel demand in China.  

Furthermore, there was little sign the government was about to relax its tight monetary regime and steel mills and trading firms were also under pressure to pay back loans. 

But Train said there was enough impetus on the market to improve even without positive policy signals, though the "upside" would not be spectacular. 

"The market has come round to the idea that (a policy relaxation) is not going to happen -- monetary supply has improved quite a lot, growing 20 percent year on year in January, so liquidity has sorted itself out." 

"That means real demand can come back to the market – you just don't get the big apparent consumption surge that would come from a very strong policy signal."   

VALE MEGASHIP SNUB   

The Ministry of Transport said on Tuesday that it would not allow ships exceeding approved capacities to dock in its ports, a move that will prevent Brazil's Vale from sending its giant vessels to China, its biggest market.  

Analysts suggested the move was primarily motivated by a desire to protect China's struggling shipping sector, particularly listed firms like Cosco. 

"They are clearly trying to help companies survive their losses and protect their shares from being subject to 'special treatment' on the stock exchange," said a shipping futures broker based in Hong Kong. 

"There is a lot of politics being played out and it is possible that China is trying to get more pricing power over Vale's ore by refusing them entry, but the main reason is to help the shipping companies," he said.   

Some traders have said that Vale sometimes struggled to persuade Chinese buyers that Brazilian ore was a better option than that from Australia, but its plans to boost market share in the world's biggest iron ore market were not expected to suffer unduly as a result of Tuesday's decision, said Train. 

While the decision to ban its ships from Chinese ports might add a little to Vale's costs, Vale is still in a position to pursue its overall strategy for the Asian market.   

"For Vale, it has never been so much about the cost per tonne as being about maximizing production capabilities. They need to get ore as quickly as possible from the western hemisphere to the eastern hemisphere, and they can still do that so this is not that big a deal for them." 
 

Key Words:  iron ore  iron ore price  steel demand