Chinese steel mills diversifying sources for iron ore supply

Friday, 04 Feb 2011
Indian iron ore spot prices in recent days kept surging due to iron ore supply shortage in the market, triggered by the news about Indian government hiking iron ore exports duty, flooding situation in Australia, Iran also contemplating 50% duty tax on iron ore fines and 35% on pellet exports.

With the expectation of housing project, railway project and underground projects undertaking in 2011 and many experts believe the Chinese steel demand will continue to see rapid growth in the next few years. The supply of the main source for steelmaking, iron ore has long been controlled by the three major supplying countries, Brazil, Australia and India. It has become a serious concern that China needs to diversify the sources of iron ore supply in the future in order to secure the necessary resources for the steel industry.

In fact, the recent data from China Custom have revealed the efforts. China imported 617 million tonnes of iron ore in 2010, down 1.4% than the previous year.

However, imports from smaller miners have showed significant growth in the past year. Between January to November in 2010, China imported 6.68 million tonnes of iron ore from Peru up by 22%, 4.41 million tonnes from Venezuela up by 77%, 12.88 million tonnes from Iran, up by 128%, 6.9 million tonnes from Indonesia up by 19%, 1.84 million tonnes from North Korea up by 167%, 1.72 million tonnes from Vietnam up by 10% and 6.10 million tonnes from Chile up by 17%.

Apparently, the surging iron ore spot prices and profitability of iron ore encourage smaller suppliers to jump into the iron ore market, thus pushing the imports from these countries to go up. Meanwhile, the overall decreasing in total imports and increasing amount from non-traditional iron ore suppliers indicated the Brazil, Australia and India market share have dropped in 2010.

Analysts pointed out that their market shares drops might be result from the economic recovery in Europe market and Vale have distributed quite a great deal of stock to the region. Traders revealed that importing iron ore from the major suppliers meant accepting the high cost at the market, and importing from smaller miners could mean the prices could be more flexible and thus more attractive.

The high iron ore spot prices have been pushing the index base quarterly contract prices to go up in the quarter one of 2011 as well. Sensing the huge demand from Chinese steel industry, major supplier like Rio, BHP and Vale have planned to expand production in 2011 and the onwards years.(sourced:mysteel.net, for real time access to China steel news)

Indian iron ore futures may be cash-settled-source

Indian iron ore futures may be cash-settled-source
Cash-settled contract may be benchmarked to TSI
* Exporters, traders unlikely to rush in to hedge
* Chinese, overseas firms have shown interest-ICEX (Adds quotes, details, background)
By Siddesh Mayenkar

MUMBAI, Jan 28, 2011 (Reuters) - India's planned iron ore futures contracts are likely to be settled in cash initially and would be linked to internationally acceptable prices, an official said on Friday, but potential players say they would not rush in to hedge on the platform until there is ample liquidity.

Singapore is also looking at a cash-settled futures contract which the Singapore Mercantile Exchange is hoping to launch in the second quarter, in a race with India to establish the world's first futures market for the steelmaking ingredient.
"The contract would closely track acceptable benchmarks like the TSI (The Steel Index)," an official from the Indian Commodity Exchange (ICEX) told Reuters on condition of anonymity.
TSI .IO62-CNI=SI is one of three key providers of iron ore reference prices which global miners Vale , Rio Tinto and BHP Billiton use in setting quarterly contract rates.

SMX, controlled by India's Financial Technologies , was looking at benchmarking its futures contract against the iron ore index of another data provider, Metal Bulletin .IO62-CNO=MB.
India's commodity market regulator, Forward Markets Commission, on Tuesday approved plans by ICEX and the Multi Commodity Exchange (MCX) to launch four iron ore futures contracts. ICEX said it was looking at launching in a month's time.

India is the world's third-biggest iron ore exporter after Australia and Brazil, although its shipments have dropped for a sixth straight month in December because of an export ban in its southern Karnataka state. India normally exports around 100 million tonnes of iron ore annually of which around a quarter comes from Karnataka.
But India's iron ore exporters said liquidity would be a key consideration before they hedge on the futures platform.
"It's a fear that prices may not fluctuate on an intra-day basis, which may put speculators off and take away liquidity from the market and hamper corporate participation initially," said another source with ICEX.

ACCEPTABLE BENCHMARK
Futures contracts would be in addition to the existing forward swap contracts, launched in 2008, being offered by bourses from Singapore to the United States and Europe to prod steelmakers into hedging price risks after the industry moved to a more flexible quarterly pricing system last April after the collapse of a 40-year-old annual benchmark system.
"We wonder if we would hedge right away or wait to see how soon liquidity enters the market," said Rahul Baldota, executive director with iron ore exporter MSPL, which ships most of its annual output of 2.5 million tonnes to top buyer China.
"We hope liquidity would come in over a period of time after options come on board."
India is awaiting approval from the lower house of parliament to start options contracts, which are likely to lure corporate participants and boost liquidity.
"Few overseas firms have shown interest, and they plan to open a subsidiary here so that they can procure, hedge and export," said Sanjay Chandel, chief executive at ICEX.
The absence of foreign players in Indian commodity bourses is a predominant concern which could further limit liquidity, and restrain its influence as a price setter for the seaborne iron ore market worth around $100 billion in 2010.

India currently bars foreign funds from its commodity exchanges.
"India would take time, say another two years, to become a globally acceptable benchmark and could be much more easier after the entry of foreign players," said ICEX's Chandel.
Chandel said ICEX plans to start roadshows next month to promote the contracts. (souced: reuters)

Iron Ore-Spot prices eye $200/T, indexes at record

* Indian ore offers steady at $188-$190/T-Mysteel
* Chinese buying likely to extend to next week
(Adds Shanghai rebar futures at record)
By Manolo Serapio Jr

SINGAPORE, Jan 21, 2011 (Reuters) - Iron ore spot prices in Asia remained strong on Friday and looked set to hit $200 a tonne soon, buoyed by demand from top buyer China and fewer high-grade cargoes.
The rally that began at the start of the year lifted key price indexes to record levels on Thursday and traders say the momentum could extend to at least next week before the Chinese week-long Lunar New Year holiday starts.
Chinese New Year kicks off on Feb. 2.
"There's not much high-grade cargo available and that's the reason why prices are rising," said an iron ore trader in Singapore.
"And the Chinese have no option so the buying activity will continue until next week. If supply remains tight when they are back from holiday, prices will continue rising."
Iron ore supply has been tight, with fewer cargoes out of Brazil due to rainy weather and Indian exports hampered by logistical problems and a ban on shipments from its Karnataka state since July.
Brazil and India are the world's second- and third-largest exporters of the steelmaking material. Chinese imports from the two countries fell in 2010.
Table on China's iron ore and steel trade:
Rising prices of iron ore as well as coking coal, another ingredient in producing steel, after floods hit top supplier Australia have pushed up Shanghai rebar futures to a record level for a fourth time in a week, although volumes have steadily fallen from November.
The most active May rebar contract on the Shanghai Futures Exchange rose as high as 4,956 yuan a tonne, before closing at 4,950 yuan, up 0.7 percent.
SWAPS FALL Indian ore with 63.5 percent iron content was being offered at $188-$190 a tonne, cost and freight delivered to China, on Friday, steady from the previous day, said Chinese consultancy Mysteel.
"My company has decided to save some material for selling after the (Chinese New Year) holiday and we have stopped offering now as we can't see any signals for prices to ease," said a Beijing-based iron ore trader.
"It seems prices will hit $200 per tonne soon."
The Platts 62 percent iron ore index IODBZ00-PLT hit a record of $186.50 a tonne on Thursday, while the Steel Index 62 percent benchmark .IO62-CNI=SI also touched a record of $185.40.
Global miners including Brazil's Vale , the world's biggest iron ore producer, use the Platts index to decide prices for quarterly contracts, which analysts say are likely to rise again in the second quarter after an estimated 7-8 percent hike in January-March.
But a sharp decline in forward swaps on Thursday suggested prices could ease in the near term.
The Singapore Exchange-cleared February contract dropped 1.9 percent to $177.38 a tonne and March fell 2.8 percent to $172.38. (Additional reporting by Ruby Lian in SHANGHAI; Editing by Ed Lane, souced reuters)

Monday, Janurary17, 2011 Market Monitor - Iron Ore - WEEK 2 - market up

Monday, 17 Jan 2011

Iron ore spot market is continuing its upward momentum with approaching spring festival holidays and concerns on supply side.
Reports are filtering in for transactions at USD 184 CFR levels on limited high grade parcels from India as well as concerns of a tropical cyclone threatening to interrupt production and shipments in Australia.
As the higher grade cargos are very few, talks of up to USD 190 per tonne CFR are starting to be heard.
Iron ore fines, FOB India
Grade Change
Fe 63.5/63%------------ 2%
Fe 63.5/62.5%------------2%
Fe 63/62% ------------ 2%
Fe 62/61%------------ 2%
Fe 61/60%------------ 2%
Fe 60/59 % ------------2%
Fe 59/58 % ------------2%
Fe 58/57% ------------3%
Fe 57/56 % ------------3%
Fe 56/55%------------ 3%
Fe 55/54 % ------------3%
Fe 54/ 53 %------------ 4%
Fe 53/52 % ------------4%
Fe 52/51 % ------------5%

Change is on Jan 14th as compared to 7th Jan 2011