scramble for iron ore

Steel price surge spurs scramble for iron ore

Thursday, September 06, 2007

Chinese steel prices are soaring despite a cut by the country's top mill, prompting a scramble for spot iron ore cargoes from India and pushing the raw material's prices to record highs almost every day.
This could pave the way for another major increase in 2008 iron ore term prices, to be negotiated between mills around the world and global miners such as Brazil's CVRD late this year or early next year, iron ore traders and industry officials said.

Medium-grade ore from India is now offered at prices above US$150 (HK$1,170) a tonne delivered to China - up nearly 70 percent from early this year and well above Brazilian ore prices of about US$120 to US$125.

"Under current market conditions, it is just wishful thinking to imagine we can get a lower term price in 2008 than 2007," Chen Haoran, chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters said yesterday.

China's iron ore imports are likely to rise by more than 18 percent in 2007 to 386 million tonnes, estimated Zou Jian, chairman of the China Metallurgical Mines Association.

Baosteel, the largest steelmaker in China and the industry pace setter, said in August it would cut major steel product prices by 200 yuan (HK$206) a tonne in the fourth quarter from the third quarter.

"Baosteel cut prices but no other mills have followed. Everybody is increasing prices," said an iron ore trader in Beijing. "The market has gone mad ... Right now, we cannot see any signs of a slowdown." Domestic steel prices have risen as the economy roars ahead at an annual growth rate of more than 10 percent in the run-up to the 2008 Beijing Olympic Games.

"This is a vast country. They still need a lot of steel," said an industry official in Beijing. "And it's absolutely normal for the economy to overheat before the Olympic Games."

Unabated exports of steel products are helping to support prices, despite Beijing's efforts to curb foreign sales of energy and resource-intensive goods such as steel products.

About six million tonnes of steel products were shipped out of China in August, against July's 5.94 million tonnes, with many cargoes heading for the Middle East, North Africa and South America. There might be more in September.

"There's little you can do when the price gap is as much as 30 to 40 percent. Even some domestic traders are turning to exports," said the Beijing steel industry official.

He added that the industry was diverting exports away from Europe and America, however, for fear of possible anti-dumping action.

Asked if Beijing could introduce more measures to limit exports, another steel industry official said: "It may happen later, maybe in six months, but not in the near future."

With China's 2007 crude steel output set to reach 480 million to 490 million tonnes, up from 418.78 million tonnes last year, the sector needs high- priced Indian spot iron ore cargoes.

REUTERS

London based commodities reasearcher CRU is forcasting Asia's Iron Ore demand to more than double over the next fifteen years ........