The state-owned iron
ore purchaser China introduced last year to enhance
steelmakers’ negotiating power has yet to deliver the reduced iron ore prices
mills had hoped for.
According to Reuters, approximately 30 Chinese steel mills have
signed iron ore procurement contracts through the China Mineral Resources Group
(CMRG), but one steel mill said it hadn’t enjoyed any price improvements to
date.
“We have not received
any cheaper iron ore prices and to be honest I don’t expect they can get better
deals any time soon,” a purchasing manager for a state-owned steel mill said at
a Singapore industry event last week, as reported by
Reuters.
Other steel mill officials and iron ore
traders echoed this sentiment, suggesting iron ore prices were no cheaper than
what they could achieve independently.
The CMRG has overseen plenty of activity in
the Chinese iron ore sector since its introduction last year, with the 30 steel
mills in question accounting for approximately 300 million tonnes of iron ore
purchases per annum.
But this hasn’t created any notable market
shifts.
“Our cooperation with the CMRG is
constructive … so far we have not seen a market-shaking change,” a mining
company official told Reuters.
“It’s hard to say if more Chinese firms will
put their contract bargaining under CMRG in the future. That would mainly
depend on what CMRG achieves.”
And while Chinese steelmakers have been
unable to achieve the lower prices they desire, they are required to pay
commission for CMRG’s services, adding costs at a time when lower steel demand
from an ailing property sector is impacting revenues.
Imported iron ore prices in China fell below
$US100 per tonne (t) for the first time in six months on Wednesday last week,
with 62 per cent seaborne Australian iron ore fines at the port of Qingdao
trading at $US97.3 ($149)/t.
“Chinese prices for
imported iron ore began a steep slide from late last week as pessimism
intensified among market participants, and fundamentals for the ore stayed
weak,” Mysteel said.
This pessimism also saw imported iron ore
stocks from Chinese steel mills drop to a record low last week, where 64
Chinese steel mills had 9.37 million tonnes of imported iron ore sintering
fines in stock according to a Mysteel survey for the May 18–24 period.
This was a 172,100-tonne decline from the
week before and the lowest figure since Mysteel first launched the survey in
July 2014.
“The volume was also
41.6 per cent lower than the same period of last year, Mysteel’s data showed,” Mysteel said.
“Market watchers attributed the continuous decrease to the still-cautious
buying from many steel mills.”
Subscribe to Australian
Resources & Investment and receive the latest
news on commodity prices, resource developments, executive movements and more.