Economy

Spot iron ore prices forecast to stay high

By Ruby Lian and Jason Subler (China Daily)
Updated: 2011-03-24 13:37

QINGDAO, Shandong province - Spot iron ore prices will remain high this year as supply remains controlled by a few big suppliers, an official from China's industry group said on Tuesday, although traders said slower demand from top buyer China may weaken prices in the near term.

"Iron prices will stay high and fluctuate this year as the raw material is becoming more financialized and still in monopoly," Liu Yinan, vice-chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, said at an industry conference.

China, home of the world's largest steel industry, has complained that big iron ore miners are trying to force spot pricing on their Chinese customers after Vale SA and Rio Tinto Group ditched a decades-old annual pricing system in favor of a more flexible quarterly scheme last year.

The industry group said on March 17 that China's iron ore imports are expected to rise by 6 percent, or 40 million tons, this year as the country lifts steel output to meet growing demand.

Liu said China's crude steel demand is expected to increase by 40 million to 50 million tons this year.

China continues to import a huge volume of iron ore every year even as it increases domestic ore output because of the lower grade of the material at home. Last year, China's iron ore imports reached 619 million tons.

Related readings:  China to set national standard for imported iron ore  China iron ore imports to rise 6% in 2011  Iron ore Index-based pricing takes control  CISA urges stockpiles of iron ore reserves

"The use of alternatives to replace huge imports will be limited in the long run," Liu told participants at the conference organized by the industry consultancy Mysteel.

Spot iron ore prices gained more than 40 percent last year and reached record highs in mid-February on booming demand from China.

But prices have lost 15 percent since touching all-time peaks as slow Chinese steel demand curbed buying, under pressure from Beijing's attempts to cool growth by tightening monetary policy and restricting credit. Prices may fall further before they rebound, traders said.

"Iron ore prices will very likely stay weak in the short term, but the fall will not be very big and Chinese steel mills are expected to make more purchases in small tonnages to build up stocks," said Feng Shuijun, general manager at a trading unit of Sinosteel Corp.

Feng said a reasonable price range for iron ore should be between $150 and $160 a ton, including freight, in the long run.

Another trader from northern China said he expects Chinese steel mills to return to the market by late April after prices have fallen further. "Iron ore prices will likely hit $140 to $150 a ton in the second quarter," said an iron ore trader from eastern China.

Reuters