iron ore - must read

I think I've finally worked out why MGX is taking a bath.
Slowing world growth coupled with the fact that the Chinese look like they will renegotiate iron ore price contracts this year.

"China, the world's top steel producer, is set to restrict imports of iron ore from May, a shipping industry executive said in Hong Kong on Wednesday, as outlooks for the country's 2005 steel output and iron ore imports were wound back."

Shanghai. April 19. INTERFAX-CHINA - Zou Jian, the Director of the China Metallurgical Mining Enterprises Association and the General Manager of the China Metallurgical Mining Corporation told Interfax Tuesday that the Chinese iron ore price would fall this year due to increasing domestic supply and a moderation of demand. He also predicted the advantage on international iron ore market will return to the buyers and a wave of iron ore price cuts will start next year.
Zou said, "The domestic market over the first quarter increased considerably following companies building up their stockpiles during the Spring Festival and the iron ore import price appreciation. However,
this is a short term trend, and in the near future the market will be characterized by falling prices."
Zou pointed to a substantial increase in domestic production shifting the balance of supply and demand. "Many domestic iron ore mines have
enlarged output and many partially depleted mines have restarted operation," he said. Zou said that China would be able to produce 35 mln tons iron ore per
year in three to five years, which is 25 mln tons more than the current figure. "Over the second half of this year, the domestic iron ore supply will surge and will cause serious stockpiles," he said. Chinese firms have has launched a number of iron ore projects, including
the Huoqiu iron ore mine's 5 mln ton ore processing project in Anhui, Jiuquan Steel's 2 mln ton mining project, and Kunming Steel's Dahongshan 500,000 ton ore processing project. Many other projects are under construction, including Panzhihua Steel's 6 mln ton ore processing project and TISCCO's Sijiaying 7 mln ton ore processing project, as well as a range of projects in Inner Mongolia. Zou also mentioned some other effects of the 71.5% iron ore price hike.
"Although the iron ore price will fall in the long run, some domestic steel makers will be forced to close due to pressures from both the raw material cost increase and the decline in low value added steel products
prices." "Moreover, the growth rate of domestic steel output and iron ore imports will fall rapidly, therefore, shipping charges have no reason to continue to increase and will fall instead. Therefore the iron ore FOB
price will not soar to the levels that some people have predicted. Maybe we do not have to wait until next year for another round of import price depreciation," he said. China's steel output over the first two months were 49 mln tons, up 22.5% year-on-year. However, February's output fell by 1.2% from January. Moreover, Qi Xiangdong, the Deputy Director with CISA (China Iron and Steel Association) predicts that China's steel output of this year would increase by 10.29% to 300 mln tons, while last year's yoy
growth rate was 22.7%. Chinese shipments of steel and iron ore import volume are both expected
to decline following the cancellation of the export tax rebate of steel ingot, slab, and pig iron and the implementation of iron ore import license mechanism. In addition, a senior official with the Ministry of
Finance has confirmed to Interfax that the authority is discussing practicability of reducing the 13% export tax rebate of steel products to 11%, but details remain in future. This might lead to a further
decline in steel export volume.