Friday, July 31, 2009

China Buying More Iron Ore From Brazil

The chartering of bulk carriers for delivery from Brazil to China of iron-ore bought on the spot market hit a record level this month.

The number of ships involved is 31.

This is because the Chinese are substituting Brazilian iron-ore for Australian, as a result of Australia’s suspension of spot sales to China. The decline in freight costs also makes sourcing spot iron-ore from Brazil more attractive.

China takes more than 50% of globally traded iron-ore and its rising demand has driven the spot price to its highest levels in eight months. Indian iron-ore-miners are also benefiting from this strong Chinese demand. Ores from India with an iron content of 63% to 63,5%, for delivery in August, were quoted at prices of $91/t to $93/t last week, up from $87/t to $89/t a fortnight ago.

Spot prices for benchmark 62% iron content ores from all international sources delivered to China, according to the Steel Index, reached $84,4/t early last week – an increase of nearly $3/t in a week – while the Metal Bulletin reported a price for this quality ore of $85,8/t for the same date. By the end of last week, the spot price was close to $100/t. Indeed, spot prices have risen by more than 60% in three months.

Market watchers believe that the spot prices will remain above contract prices for this year, but spot price increases could be constrained by the possibility of high- cost Chinese mines being reopened and by short-term excessive Chinese buying of the metal, leading to pauses in buying later in the year.

Brazil has been China’s number two supplier of the metal, after Australia. But during the first three weeks of this month, there were only 12 bookings for ships to carry Australian iron-ore to China, compared with a monthly average of 40 during the second quarter, and in sharp contrast to the record figure of 55 in March.

All this is the direct result of the dispute between Australia and China over the latter’s detention of four China-based employees of Anglo-Australian mining group Rio Tinto on July 5. One of the detained men, the manager of Rio’s iron-ore sales operation in China, Stern Hu, is an Australian citizen, while the other three are Chinese citizens. The Chinese authorities accuse the four men of stealing State secrets, obtaining them by bribery and other criminal methods.

Rio Tinto has stated that the allegations are “wholly without foundation”. However, on July 22, Chinese vice Foreign Minister He Yafei asserted: “We have sufficient evidence showing that the individuals involved obtained China’s State secrets using illegal means.”

Chinese law allows suspects to be held and interrogated for some time without being charged and without access to legal representation (although China has allowed Australian consular officials to visit Hu). China is not a democracy and does not have an independent judiciary, and Australian Foreign Minister Stephen Smith pointed out: “The Chinese have a much broader or wider view of what Australia might describe as State security, State secret, or national security matters.” Australia is pushing for the case to be dealt with expeditiously.

China is Australia’s second-biggest trading partner, and trade between the two was worth nearly $60-billion last year (up 36,1% from 2007), of which Australian iron-ore exports accounted for some $14-billion. China is Australia’s number one source of imports and its number two export market – Australian exports to China reached $37.42- billion last year, an increase of 44,8% over 2007. For China, Australia is its number seven source of imports and number ten export market, ranking the Antipodean country as the Asian giant’s eighth most important trading partner.

Little wonder, then, that Australian Trade Minister Simon Crean has commented, regarding the Rio Tinto affair, that with regard to the “impact on the economic relationship between our two countries, I don’t believe – particularly if the case is handled properly – it will have any impact on those relations”.

Source: Creamer's Mining Weekly

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