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Raw Material Prices Fluctuations

/Rusmet.ru, Victor Tarnavskiy/ Global market of iron ore  got unstable in the beginning of the current year, when the largest exporters of iron ore, Brazilian company Vale and Australian Rio Tinto and BHP Billiton rejected the existing pricing method, which worked for 40 years. Together these companies control almost 70 %  of the market (transoceanic shipments). In the Q2 of 2010  Asian and European manufacturers agreed for raw materials prices increase. Raw materials prices were determined according to spot prices indexes in the previous four months. However, in March problems occurred.  Iron ore corporations demanded a new prices jump taking into account iron ore prices increase in  March-April. The quarterly prices suggested by them occurred to be 20% higher than the spot ones.

Due to this the negotiations about iron ore price for another three-month period failed. Most large iron ore importers have concluded the agreements at the manufacturers’ terms in order to provide themselves with regular shipment. Many experts suggested alternative pricing methods, in particular monthly pricing or spot or even stock trade, as in non-ferrous metals market, were offered.

However, relative stability of iron ore  prices seems to have calmed down the market. According to Rio Tinto General Manager, Tom Albanese, who used to vote for “market” trade principles, today quarterly contracts are optimal. The management of Vale keeps the same point of view.  The possibility of such agreements for Oct.-Dec. is rather high.

If to take the average iron ore spot price in June-August as the basis, the price in the Q4 should be lower than in the Q3. According to Vale’s estimations the decrease is to amount about 8%. Chinese specialists give 10-11%. Anyway Brazilian iron ore  price is to fall to $129-133 per ton FOB as compared with $144,5 per ton FOB in the Q4.

The prices for Australian iron ore should be based on  spot indexes in July-September. However, they will be lower than today also.  After some increase in  the beginning of August  iron ore prices in China started down.  The price of  63.5 %  Indian concentrate  in local market  reduced by the end of last week to $152-153 per ton against  $156-158 per ton CIF  in the beginning of the third decade. According to analysts the price will decrease to less than $150 per ton CIF soon. China managed to terminate raw materials import expansion due to the national mining sector development. In the first seven months of the current year this figure amounted 360.5 mio tons, which was  by 1.6 % higher than in the same period a year ago, although steel output in China increased by 18.4%.

By all appearances, Australian iron ore prices in the Q4 will amount $143-148 per ton CIF China against  $157-159 per ton CIF in July-September. This means that they will be very close to the spot prices. Thus, most consumers will agree to sign quarterly contracts.

Some decrease of the prices is expected in the Q4 in coking coal market. The largest coking coal supplier, BHP Billiton Mitsubishi Alliance  offered $190 per ton FOB against  $225 per ton FOB in the Q3 to Japanese customers. The metallurgists can even try to get further discounts. Unlike the Q2 there is no coking coal shortage in the market  due to Chinese import reduction and Australian supplies expanding.

Thus in the Q4 iron ore and coking coal prices are to decrease.

Sep 5, 2010 12:46
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