The iron-ore market, which moved to quarterly contracts in the second quarter of the year, has stabilised, following a period of volatility after the global financial crisis and the collapse of the yearly benchmark pricing system.
The quarterly price for iron-ore jumped 23% in the third quarter to about $147/t, which has been followed by a 13% drop into the fourth quarter to around $127/t.
“Iron-ore and steel markets experienced strong and volatile price and tonnage growth in first half of 2010, but this has calmed in the second half of the year,” said RCR iron-ore analyst Dr Trent Allen.
“Based on spot prices for September, it seems likely the quarterly iron-ore price will be flat or decline slightly (by around 6%) going into 2011, and should remain stable through the year.”
Allen noted that the system of quarterly iron-ore contracts has also settled in, with prices indexed to the previous quarter’s spot market.
“Although there’s still a lag between contract price and spot market action the risk of a big disconnect, like the one in the fourth quarter of 2009 and the first quarter of 2010 when spot prices soared and left the contract price behind, is much lower with quarterly than annual benchmark prices.”
RCR noted that the price movements broadly reflect changes in global steel supply.
Crude steel production is forecast to be 1,3-billion tons in 2010, an 18,4% increase on 2009.
The biggest factor in the post-global financial crisis recovery – the urbanisation of China and India – was ongoing and should drive reasonable growth in the iron-ore and steel markets for the foreseeable future, RCR stated.
Long-term prices would be tied to iron-ore production versus steel usage of the main consumers.
Meanwhile, Allen noted that Australia-listed iron-ore stocks have gained an average of 31% in 12 months, driven by the overall market recovery and rising iron-ore prices.
Prices gained 30% in three months, and 14% in one month, to the end of September, owing largely to the easing of concerns around the global economy and the partial scrapping of the proposed resources super profits tax (RSPT).
Similarly, Canada-listed iron-ore stocks have gained an average of 62% in 12 month.
“Iron-ore equities in Australia have outperformed the ASX200 over the past 12 months. This is due as much to broader economic recovery as any local influence, such as the partial scrapping of the RSPT, because Canadian-listed iron-ore companies have made similar gains,” said Allen.
“Even if iron-ore and steel prices stay flat or decline moderately in 2011, a stable market is good news, while the China-India story means a strong long-term outlook for companies with solid projects.”