Prices for the iron ore China is importing jumped this month to $107 per dry metric ton, the highest import price in a year, according to The Steel Index, which tracks the delivered price of 62% ferrous-content fines. If iron ore prices remain inflated in early 2010, the cost pressures could become a major driver of higher Asian steel prices next year-which, in turn, could influence global steel prices upward.
Worldwide steel production is creeping up from early 2009 lows as the global economy slowly comes back to life, writes analyst Gavin Wood at Nomura International, but the revival of such raw material supplies as iron ore may not respond quickly enough, particularly in the face of an insatiable China. "Chinese demand for raw materials is pushing prices higher and we think next year steel prices will have to move up as producers pass on the rising raw material costs," Wood says.
The Steel Index iron ore reference price has been erratic all year, falling to $59 last March, peaking in excess of $100 in August, falling back to $76 in September, and now climbing to $107. A Reuters news report says the current price is 30% above the contract prices of 2009.
In a new report, Steven Randall, managing director of The Steel Index, says the volatility and rising spot price "creates a challenging background" for the imminent iron ore benchmark price discussions between the Chinese steel mills and Australian and Brazilian miners for next year's deliveries. At current freight rates, the spot price is some 45%-50% higher than the fixed-contract price agreed between the Japanese steel mills and the miners in mid-2009. As has been reported, no agreement on a benchmark iron ore contract price was reached with the Chinese steel industry in 2009 although mills there have been buying on spot for several months.
Looking ahead, UBS Securities, JP Morgan Securities and Goldman Sachs JBWere have predicted a 20% rise in Asian iron ore costs in 2010, which is higher than previous forecasts. Macquarie Bank now is predicting a 30% increase.
Steel makers around the world are restarting blast furnaces shuttered as demand dived during the global economic slowdown. "This movement by steel makers is boosting ex-China demand for iron ore and causing the iron ore market to become tighter earlier than we expected," write JP Morgan analysts in a research note.
Source: Purchasing.com
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