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Iron ore price gap between spot and contract widens to 30%

Iron ore price gap between spot and contract widens to 30%

It is reported that iron ore spot price has fallen to some USD 77 per tonne CIF as domestic steel price has gone back to the level in early December of 2008 after a short lived revive.

Given contract iron ore price of USD 99 per tonne, the gap between contract price and spot price has widened to 30%. Analysts note China"s negotiation with three mining giants may be prolonged since iron ore price will fluctuate according to steel price undulation.

Statistics from Mysteel show that on February 26 prices for steel products, including HRC, CRC, medium plate and rebar, dived to the level in early December of last year. Officials from China Iron & Steel Association pointed out domestic steel demand failed to rally substantially. Steelmakers increased production resumption, hence supply soared, weighing on steel price.

According to a source, daily steel output hit 1.33 million tonnes in this January 2009 equaling to annual output of 480 million tonnes of crude steel. Daily output in early Feb also jumped significantly. As the 4 trillion stimulus package has not led to actual demand, steel supply exceeded market bearing capacity, thus steel price will inevitably nosedive.

Mysteel analysts revealed steelmakers" production restart is lagged behind steel price hike. From mid November of 2008 to Feb 6th 2009, steel price kept rising for 12 consecutive weeks. The upswing stopped in the second week after Spring Festival, but crude steel output is expected to fall in early Mar.

Ocean freight rate once surged due to rising steel price, and domestic spot iron ore price once climbed to US$86/ton, narrowing the gap with contract price to less than 10%. As steel price slumps iron ore price has gone back to USD 77 per tonne and the gap has widened to 30%.

Steelmakers cut outputs in view of steel price drop, decreasing demand for iron ore, hence ore stockpiles at ports increased. Total iron ore stockpiles at 19 major ports amounted to 57.74 million tons last week, up 430,000 tons compared with a week earlier. Tianjin Port and Caofeidian Port now reports severe congestions.

Mar 3, 2009 12:44
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