Falling iron ore prices had reached their lowest point over 22 months in late October. Since then, prices have been rising and they reached $147.60 per tonne—a rise of 26%—over the last few weeks. However, market observers are not celebrating yet; in fact they have cautioned investors that steel demand is still subdued so the rising iron prices could be a reflection of purchases made by metal traders and not steel making companies.
A physical iron ore trader from Singapore remarked, “I don’t think real demand has increased in China. Most of the buying is done by traders who are stocking up on iron ore, wanting to take positions.”
In mid-December, Chinese steel mills boosted their stockpiles and that drove spot prices up by about 4%. An iron ore buying official from a small-sized steel mill said, “There should be another wave of restocking before the new lunar year, but it’s hard to say for sure as steel prices are still weak.”
India’s iron ore exports fell by 25% between the April to October period and chances are they will fall by 33% and reach 65–70 million tonnes by March 2012. China has been India’s largest iron ore importer for many years now, importing almost 50% of India’s production. The trend changed in July 2010 when the Indian state of Karnataka introduced a ban on shipments because of various domestic legal challenges. This has forced China to look for alternate sources to meet its domestic demand.
The United States has been observing rising numbers in the sale of cars, oil drilling equipment and farm gear and that has triggered an increase in both steel production and prices. Steel prices had declined in early 2011 but prices began rising in the later months and rose by almost 25% in the last 6–7 weeks.
However, like all other nations, steel producers are being cautious. Construction and a few other markets are still weak, profit margins are low and energy and raw material costs are still high—all of which do not paint a very positive picture. High production and increased imports could in fact cause a further dip in prices.
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