Global miners are likely to keep iron ore contract prices steady in the fourth quarter, with spot prices stabilising on firm Chinese demand and tight supplies, Reuters calculations showed.
Based on Platts index prices IODBZ00-PLT for June to August, which top iron ore miners such as Vale and Rio Tinto use in fixing fourth-quarter contract prices, the 62-percent grade averaged $175.63 a tonne, cost and freight, down marginally from $176.96 in March-May, the basis for third-quarter pricing.
Contract prices jumped 20 percent to a record $179.24 in the second quarter, based on Platts index prices for December-February, as booming demand from top consumer China helped spot prices surge to a record of nearly $200 a tonne in mid-February.
Platts-based spot prices averaged $179 in August, up from $175.26 in July, amid weakness in other commodity markets fuelled by worries over a struggling U.S. economy and a crippling debt crisis in Europe.
"Despite a depressed global economy, iron ore prices showed extreme resilience throughout August," said Stella Wu, iron ore manager at the Steel Index (TSI), another reference price provider.
"The monsoon hitting the east coast of India, as well as ongoing problems in Karnataka and shortages of domestic Chinese iron ore concentrate, have all contributed to extremely tight supply at a time when mills are looking to make bookings," Wu said in a statement.
India, the world's No. 3 iron ore exporter, sells the bulk of its cargoes via the spot market and fewer shipments from there meant more business for the top two suppliers, Australia and Brazil, even though miners from both countries sell most of their output via long-term contracts, traders said.
TSI's reference price for 62-percent grade iron ore fines averaged $177.45 a tonne in August, up 2.6 percent from July.
While many expect prices to continue rising as purchases from China pick up going into the peak season, a trader in Sydney said he had yet to see any uptick in demand, suggesting price gains will be limited during the final third of this quarter.
"Is demand steady? Yes," he said. "But is demand rising on the back of restocking by steel mills? I haven't seen that yet."
This suggested average price setting for the December quarter could come in little changed from the previous quarter, he added.
CHINA DISCONTENT
Vale and Rio along with BHP Billiton last year scrapped a 40-year-old system of pricing iron ore contracts annually in favour of an index-based quarterly pricing mechanism to capture sharp swings in spot prices.
Prices for quarterly contracts are largely based on the average index prices over a three-month period ending a month before the start of each quarter.
BHP said last week it was linking the majority of its sales to monthly average spot prices but continued to negotiate long-term contracts for supply volumes.
Leading Chinese steel mill Baoshan Iron and Steel said on Wednesday it was now buying iron ore based on quarterly prices determined by Platts index averages. It was the first time the company had gone into detail about the way it pays for the raw material.
China was keen to cling to the annual benchmark price system, saying it was the only way to guarantee the long-term interests of both suppliers and buyers.
While it has now come to terms with the more flexible quarterly mechanism, it continues to criticise major iron ore suppliers for what it describes as "monopoly" behaviour, and remains suspicious of foreign indexes.
The China Iron and Steel Association told domestic media on Thursday that local steel mills paid $18.3 billion more for iron ore year on year in the first seven months of 2011, causing a severe decline in profits over the period.
Baosteel's general manager Ma Guoqiang said he expected iron ore prices to remain strong throughout the fourth quarter and also next year, saying the balance in the industry wouldn't tip in favour of buyers until 2013.
Reuters |
