Workers are unloading imported iron ore in Qingdao port, Shandong province, on Oct 3. Steel Index, the independent price provider, estimates iron ore prices will increase by 4 percent in the first quarter of 2011. [Photo / China Daily]

Declining supplies from India may see costs increase

BEIJING - Iron ore prices fixed by global miners Vale Group and Rio Tinto Group are expected to increase by 4 percent in the first quarter of 2011, according to estimates from the London-based independent price provider, The Steel Index.

Iron ore with a 61.5 percent ore content, and exported by Rio Tinto, is likely to be fixed at around $133.5 a ton (excluding freight) in the first quarter, up 4 percent from $128.8 a ton between the September-November period, following a formula, which is based on the average market price over the previous quarter, minus one month.

Meanwhile, iron ore with a 65.5 percent ore content, exported by Vale, will probably reach $139.5 a ton (excluding freight) in the first quarter, up 4 percent from $134 a ton, following the same formula. Meanwhile, BHP Billiton Ltd will wait for one month before calculating its price, said Rory MacDonald, head of Iron Ore Operations at The Steel Index.

"Delivered China spot iron ore prices stayed firm through the three months ending Tuesday, never falling below $138 a ton and climbing as high as $167 a ton, on consistent Chinese demand and supporting supply restrictions," he said.

"A ban on iron ore exports from the state of Karnataka, India - 25 percent of the country's exports - has been in force throughout the last three months," said MacDonald.

"But there will be limited room for Chinese steel mills to ramp up prices in the first quarter, as the winter season is a slack period for steel products. We've already seen a slowdown in the construction sector, which accounts for 45 percent of the steel consumption, as a result of cold weather," he added.

Spot prices of imported iron ore remained near a six-and-a-half-month high on Monday, amid declining supplies from India, the world's third largest ore exporter, which banned exports in July during a crackdown on illegal mining in southern Karnataka state.

Indian ore with a 63.5 percent ore content remained firm at $172 a ton (including freight) on Monday, after hitting a six-month peak last week.

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Shanghai deformed steel prices hit a record high over six months at 4,540 yuan ($684) a ton on Nov 26, up from 4,450 yuan per ton a week ago, according to data from the independent observer, Mysteel.com.

Chinese steel prices will climb on inflationary pressures, but steelmakers will still be under operational pressure due to rising raw material costs, said Zhang Lin, a senior analyst from Beijing Lange Steel Information Research Center.

"Chinese steelmakers' profits have been declining since April, when prices began to fall," Luo Bingsheng, vice-chairman of the China Iron and Steel Association said at a conference on Friday.

"The average profit ratio of Chinese medium- and large-sized mills touched 2.58 percent for the first 10 months of this year, much lower than the average profitability of Chinese industries," he said.

"Chinese steel mills will suffer the same slack situation from November to early 2011 the same as during September and October," Luo said.