Iron spot price up as Asia returns

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jul 2009

IRON ore spot prices have returned to $US100 a tonne amid growing confidence about sustained demand, and as Brazilian giant Vale signals further variations to the benchmark pricing system. Asian demand from outside and inside China is starting to grow with increased steel production, on top of the rise in Chinese imports earlier this year spurred by mine closures in China.
Rio Tinto and BHP Billiton were restrained on the prospects of sustained demand and economic growth in recent quarterly reports, but Vale, the world's biggest iron ore producer, showed no such caution.
In its quarterly earnings report yesterday Vale predicted markets had bottomed.
The company said its results reflected "the transition to a new phase in which the reaction to the global financial crisis is starting to bear fruit, leading to a gradual lessening in risk aversion, declining costs and to the beginning of a recovery in demand and prices of minerals and metals".
Metal Bulletin, which monitors iron ore spot prices said yesterday spot prices for 63.5 per cent grade iron ore into China were touching $US100 a tonne for the first time this year.
That compares with benchmark prices of about $US60 before freight, settled by Rio and BHP with some customers.
That price translates as landed prices of about $US75 at current shipping rates.
"The market has actually reached consensus that there will be a strong price hike soon," a Beijing iron ore trader told Metal Bulletin.
"Chinese domestic steel prices have increased strongly, thanks to the government stimulus package, which is the essential driver for iron ore import prices," he said.
BHP this week revealed it had made big inroads in its quest to move iron ore pricing away from the traditional annual talks.
It has convinced the majority of customers with which it has settled contracts this year to abandon annual pricing for a mix of quarterly negotiated, index-based and spot pricing.
The landmark deals represent a further weakening of the decades-old pricing system, which began to fracture last year when for the first time Rio and BHP secured higher before-shipping prices than Vale to reflect Australia's closer proximity to Asia.
Rio's move to sell up to 10 per cent of its iron ore contracts on higher priced spot markets last year during the boom, and the subsequent decision of some steel mills to turn to spot markets when prices tanked, further weakened support for the system.
Yesterday, Vale, which like Rio is yet to announce any price settlements this year with China, flagged further changes.
It said it had put in place new marketing policies, including more flexible pricing, that were important for its business in China.
The company has been offering prices inclusive of freight and at a 20 per cent discount to last year's contract since the first quarter.
BHP said it had signed 23 per cent of its volumes at the annual benchmark and 30 per cent at non-traditional pricing.
Deutsche Bank analyst Peter O'Connor said BHP would try to limit the amount of benchmark contracts signed for the remaining 47 per cent, believed to be mostly Chinese customers.
"The key message here is that BHP has about 50 million tonnes (of iron ore) to place and non-benchmark basis sales will be the thrust, where possible and appropriate," he said.
Vale said its average price for iron ore in the second quarter was $US47.82 a tonne, down 24 per cent from the previous quarter and 32 per cent from a year earlier.

Source: The Australian