13/03/14 – Iron ore prices at 18-month low on China slowdown fears

Global iron ore prices have plunged to a 18-month low on fears of a slowdown in China which consumes 60% of the mineral. Prices went down by almost 8.3% on Monday, one of its sharpest plunges in a day, as iron ore faced the brunt of a credit squeeze in China that is forcing steel mills to refuse to enter into either long term agreements or spot contracts for ore.

For domestic steelmakers, including the likes of JSW, SAIL, JSPL or Essar which are facing a subdued market, this could add fresh woes by triggering a cut in domestic steel prices, since iron ore is a key steelmaking input.Mining sector biggies like Rio Tinto and BHP quickly reacted terming it ‘short term fluctuations’ and allaying concerns of a slump in ore prices due to low demand in China. BHP was also optimistic that China’s crude steel demand is expected to top 1.1 billion tonnes in 2025. State owned NMDC, India largest miner also announced a roll-over of its February prices on Tuesday.

NMDC’s acting chairman C S Verma said: “Prices are hovering at $125 /tonne levels and we do not expect a further fall in the next few months. While global prices do have an impact on domestic prices, a number of other factors also play a part. We have rolled over our February prices to March 2014 for both lump ore (Rs 4,500 per wet metric tonne) and fines (Rs 2,910 per wet metric tonne)

Mr Verma who also heads India’s largest steel company, Steel Authority of India (SAIL) said he did not see an immediate impact on prices, as the January-March quarter is the busiest for most steel firms as companies try to meet annual sales targets. “While raw material prices do have an impact, steel prices are largely decided by demand supply position. We have to sit down and take stock of the situation in April,” he added.

However, Kotak Institutional Equities felt domestic iron ore prices are likely to remain soft in the near term and lower ore prices may lead steel companies to lower steel prices. “Beyond the seasonal variations and volatility, we expect domestic iron ore prices to broadly outperform international benchmarks. In the short run, domestic prices may soften due to decline in pellet prices and seasonality. Softening global prices of iron ore will hurt domestic steel companies on expected decline in steel prices.

Source – The Economic Times