High spot iron ore prices baffle steel firms
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Iron ore spot prices reached a record high this week, triggered by moves from global mining firms to enhance their position in ongoing negotiations, industry insiders said.
"The fact that traders are stockpiling steel on the prediction that steel prices will rise next year caused the market to soar," said a sales manager at Beijing Ye-Steel Trading Co.
China's steel stocks hit 12.18 million tons last week, up 109 percent from the same period last year and up 2.88 percent compared to last month, according to Mysteel.com.
"Even in the slack winter season, steel traders are storing stocks because they foresee an improving market next year," the sales manager said.
China's largest steel mill Baosteel and Anshan Steel announced plans to raise delivery prices of steel products for next month by 100 yuan to 600 yuan per ton.
Analysts said the price hike could put domestic steelmakers in a disadvantaged position in iron ore talks as raising steel prices provides more room for miners to hike prices.
The rising spot price of iron ore also put pressure on the benchmark price for the material.
The spot price for ore with a 63 percent iron content soared to $115 per ton including freight yesterday, up by $10 per ton over three weeks ago and more than 50 percent higher than the benchmark for fiscal 2009 reached by Rio Tinto, BHP Billiton, and Vale with Asia steelmakers.
Traditionally, annual contracts are settled below spot market prices. Last year's benchmark contract for iron ore was $60.4 a ton, excluding freight charges.
Investment banks this week have altered their forecasts for 2010-11 contracts, saying annual iron ore prices could rise by up to 30 percent, up from an expected a 10 percent increase.
The annual negotiation between miners and Chinese steelmakers are likely to start in late December. Both parties aim to finish the talks before April 1.
This year's iron ore price talks have been deadlocked since June when China's chief negotiator, China Iron and Steel Association insisted on a 45 percent discount over the last year's prices, after a 33 percent cut in benchmark prices had been reached by the three global miners with Japanese and South Korean steel mills.
