The negotiating position of Australian iron ore producers seeking to settle a benchmark price with Asian steel makers has weakened as the spot price plunged to its lowest level since July 2005 and exports are at the lowest level since November.
The spot price of iron ore, including about $US7 ($9.80) a tonne for shipping, is about $US63.50 a tonne - the same low it hit during a market collapse in late October, which ties for the lowest level since July 2005. It suggests the benchmark price will fall about 40 per cent this year. Analysts had expected a 30 per cent to 40 per cent fall.
Last week Fortescue Metals said it was already selling its ore at a 30 per cent discount that would be adjusted to take account of the actual settlement when it occurred.
Industry experts expect BHP Billiton will settle the benchmark price this year because Brazil's Vale, the traditional price setter, has indicated it will let its Australian rivals take the lead. Rio Tinto's controversial deal with Chinalco means it is unlikely to set the price.
The iron ore market had strengthened between December and mid-February, but the price has been falling since because demand from smaller Chinese steel makers restocking inventories proved to be short-lived.
UBS said export statistics showed Australian miners had shipped 23.3 million tonnes of iron ore in February, down 13 per cent from January, and the lowest since exports fell to an 20-month low of 19.4 million tonnes in November.
Heavy rains in the Pilbara are likely to have had some effect on the February figures, which were 14 per cent higher than February last year, when exports had been unusually low due to even worse weather.
Since the falling spot price since mid-February points to weaker demand, the March and April export figures could be even worse than February's.
Although China bought more Australian iron ore in February than it had the previous year, exports to Japan, Korea and Taiwan fell compared with last February. The export figures to Japan were particularly weak.
In the coal market, semi-soft coking coal exports fell 41 per cent to 1.9 million tonnes compared with January, reaching by far the lowest level since at least 2005. Exports fell to most regions, but with the exception of India.
Hard coking coal exports rose 14 per cent to 5 million tonnes in February compared with January but remained at the lowest level since at least 2005.
Thermal coal exports fell 18.7 per cent to 10.5 million tonnes in February compared with January. Taiwan was a particularly weak market.
Source: Business Day
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