Further decline seen in iron ore prices
Sellers withholding stock and 'unreasonable' pricing system earlier led to doubling in costs
Analysts expect the latest correction in iron ore prices to continue after prices had almost doubled from September last year, which the mainland's top industry policymaker said was partly driven by sellers withholding stock and an "unreasonable" pricing system.
Prices of imported ore with 62 per cent iron content at the Tianjin port fell 2.4 per cent yesterday to US$145.20 a tonne, Bloomberg reported, citing the Steel Index's global benchmark. The index has lost 8.6 per cent from a 16-month high on February 20 to US$158.50 a tonne after increasing from US$86.70 in September.
The National Development and Reform Commission yesterday accused the world's top three overseas iron ore producers and ore traders of creating an "illusion" of temporary shortage by delaying delivery and holding back sales.
To boost prices, some miners even bought stock in the spot market to pressure steel mills to agree to higher long-term contract prices, the commission said.
Other reasons cited by the commission include restocking by steel mills, which last year understocked amid weak demand and major losses, and storms that delayed shipments from Australia.
An Asian brokerage analyst said the NDRC's comments were valid, adding that the reason was the dominance of iron ore supply by the three miners in Australia and Brazil, which make up two-thirds of seaborne supply. The weak bargaining position of the mainland's hundreds of steel mills would persist until supply rose in a few years, she added.
Sanford Bernstein senior analyst Vanessa Lau said that while short-term prices were hard to predict and volatile, long-term prices were likely to fall if the pipeline of new mines came on stream as planned by 2015.
She expects the mainland's steel demand to maintain single-digit growth, after rising at over 10 per cent in most of the 10 years to 2011. "The 4 trillion yuan [HK$4.54 trillion] stimulus programme in 2009 sped up infrastructure construction, so we will see more moderate steel demand growth for a while," she said.
The China Metallurgical Industrial Planning and Research Institute tipped steel demand would grow 4.1 per cent this year.