|Chennai||Rs. 24470.00 (1.37%)|
|Mumbai||Rs. 24900.00 (0.97%)|
|Delhi||Rs. 24200.00 (1.26%)|
|Kolkata||Rs. 24160.00 (0%)|
|Kerala||Rs. 24000.00 (0.63%)|
|Bangalore||Rs. 23800.00 (0%)|
|Hyderabad||Rs. 24140.00 (1.17%)|
What has China’s Communist Party’s 10-yearly change of leadership, which formally anointed Xi Jinping as party chief, to do with iron ore or for that matter steel prices? While any link may sound bizarre to the uninitiated, in practice this is the case. On similar occasions in the past, the party worked hard to ensure the economy works better than usual in the weeks ahead of a leadership change. If anything, the pressure on the leadership this time was more, since the world’s second largest economy recorded a fall in gross domestic product growth rate over seven quarters in a row. Many believe the strong rebound in iron ore prices from around $85 a tonne in September to $122.30 a tonne is not a little due to an official push to the economy. Beijing’s recent green signalling of some major infrastructure projects is a case in point.
Speciality steelmaker Usha Martin Managing Director Rajeev Jhawar says “that purchases by a country which accounts for a shy of half the world production of steel will, all the time, have a decisive influence on prices of iron ore are begging the question. Benchmark 62 per cent iron ore first sliding to a three-year low in September and now trading at over $122 a tonne has got much to do with Chinese destocking and restocking. Chinese buying of the mineral always keeps the world guessing.” In retrospect, world ore price movements in recent periods will come to light when a fall in Chinese steel production from 61.7 million tonnes (mt) in July to 58.7 mt in August and then to 57.95 mt in September are considered. If this gives an idea of the speed and extent of the fall in ore prices, the answer to the rebound was the Chinese daily crude steel output rising close to two mt October 11 onwards. Steel price improvements and hopes of demand picking up, albeit slowly, are also encouraging Chinese mills to ramp up production.
Jhawar says, “China presenting a better economic show – improvements in ore and steel prices are manifestations of that – ahead of the once-in-a-decade leadership change is an accepted fact. The world, which does not know much about Xi, will be waiting for guidance as to what political, social and economic reforms he will introduce.” In the meantime, brokers, as they are building positions, took inspiration from Chinese manufacturing activity, covering both government and private sectors, picking up in October. More important, the country’s Purchasing Manager’s Index has returned to an expansionary zone at over 50.
India’s iron ore exports, which almost entirely are destined for China, have skid from 117 mt in 2009-10 to 61.8 mt last year and this time it will be around 35 mt, according to Federation of Indian Mineral Industries President H C Daga. “Ore exports from the east have shrunk to insignificance and Goan shipments remain frozen,” says Daga. As our high 30 per cent export duty, penal railway freight and arbitrary restrictions on mining are a source of irritation for China, this is proving good for Australian miners on capacity expansion course. Ore price swings in recent periods, according to Daga, are also a statement of the febrile state of global commodity markets.
Restocking of iron ore by Chinese mills and year-long destocking of automobiles, white goods and machinery, now requiring of the manufacturing sector to buy steel in some volume, have infused life in the ore market. Leading resources group Sinosteel Mining says ore prices will get support so long as China’s macro economy improves. Besides the much important China factor, global supply of the mineral, specially in the context of additional output from groups like Vale and Rio Tinto and how much more export tightening will happen in India will have an important bearing on ore prices. The recent rebound in prices is good news for mining groups. But these remain nearly $80 a tonne less than what iron ore fetched in early 2011. The days of extraordinary profits are over. Even then, a BHP Billiton official says, “$120 a tonne is a spectacular price.” This is because the world’s leading miners are digging up ore with iron content of 60 per cent and more at a cost of $45-50 a tonne. So, they are all to produce more this year. What will, however, be keenly watched is whether Fortescue, which is to raise production by 20 mt this year, will resume work on the Kings mine project in the Pilbara region of Western Australia, now that ore prices have rebounded from the September low. The project is designed for annual capacity of 40 mt.
In the meantime, China, itself a producer of nearly one billion tonnes of low grade ore and buyer of 60 per cent of the mineral traded globally, is said to have as many as 66 ore projects under construction or to be soon started with capacity of 500 mt. Interestingly, Chinese steelmakers themselves will be owning 80 per cent of the new mining capacity. In pursuit of the target to reduce its dependence on imports, the country braving high-cost, deep underground mining, continues to achieve a 25 per cent year-on-year iron ore mining capacity growth.