More ore demand

China continues to buy the increasing amounts of iron ore produced in Australia at the expense of Brazil, says Platts, the commodity news and pricing services owned by Standard and Poor’s.

Platts managing editor Paul Bartholomew says that in May China bought more than half its iron ore imports from Australia – 35.6 million tonnes out of total imports of 68.6 million tonnes. Brazil sold just 11.4 million tonnes in May, less than it did four years ago. Australian iron ore sales to China are up 60% since May 2009, according to Platts.

But in June, iron ore demand may have slipped. Chinese steelmakers found it difficult to get access to credit as China’s interbank lending rate skyrocketed to a record high. By the end of the month access to credit became easier after the Chinese central bank pledged to provide enough liquidity. Crude steel production neared an annualised 790 million tonnes toward the end of June. The iron ore price has since risen.

The spot price for iron ore imported through the northeast Chinese port of Tianjin has gained for seven consecutive days, according to Bloomberg data.

Since June 26, the Tianjin spot price is up 7.7% to $US122.60 a tonne as of July 5, according to Bloomberg. Platts believes there is good reason to suggest that the iron ore price will hold steady at between $US100-$120 a tonne.

Such a forecast is at odds with predictions by analysts working at investment banks. They forecast iron ore dropping below $US80 a tonne some time in the three months to September 30. That has drawn a predictable reaction from mining executives (see Tim Treadgold's Is it iron curtains for small producers?). 

“There have been a number of research houses saying some rather alarmist things about the iron ore price and the demand and supply balance over the next couple of years” Platts quotes Jonathan Fisher, general manager of corporate finance at Atlas Iron, as saying. “But you’re starting to see a level of comfort around the fact that the iron ore price is not going to dive to the levels it did last year” when the iron price fell below $US80 a tonne. “There is a seasonal dip in iron ore every year in September and October but this year we don’t expect it to be as much of a catastrophe as it was last year.”

Ausdrill’s Jose Martins agrees that analysts are overly pessimistic.

“I think the big problem from my point of view from speaking to the market is that equity analysts and investors unfortunately only have a three-month horizon,” Platts cites Martins as saying. “The investment community on the equity side just doesn’t care, doesn’t look that far, they just want to fall into a chasm of pessimism right now.”