TOKYO -- Japanese importers today welcome lower iron ore
prices, which help improve steelmakers' profitability. But profit margins could
gradually fall, given that steel prices have recently been declining.
The price of iron ore for Japan in
April-June has been set at $62 per ton, down 11% from the previous quarter.
Prices have declined almost 50% from the $122 set in the January-March quarter
of 2014. The figure went down for the fifth straight quarter and is at its
lowest level since 2010, when the quarterly price-setting system was
implemented.
Spot prices of iron ore produced in
Australia for Chinese buyers are used to set fees in Japan. Japanese prices are
applied to long-term contracts when Japanese major steelmakers, such as Nippon
Steel & Sumitomo Metal, buy iron ore from Anglo-Australian Rio Tinto and
other resource producers.
Overall trend
China accounts for half of the world's crude steel
production. Steel demand in China declined from a year earlier in 2014, due to
slowing growth. China's imports of iron ore are also likely to stop growing.
Recently, import volume fell from a year earlier in January; they also posted a
decline in November. There was no deal on iron ore even for inventory buildup
purposes before the Chinese New Year holiday kicked off, said an official at a
Japanese trading house.
Major resource companies, however, intend to increase
production. Anglo-Australian mining company BHP Billiton announced that it will
at the same time reduce costs of $4 billion by the end of 2017. They aim to
eventually dominate the market by forcing prices down and pushing small and
midsize resource companies out of the market, said an official at Nippon Steel
& Sumitomo Metal.
Since around February, iron ore
spot prices have leveled off at around $60 to $70 a ton. Some speculate that
small and midsize mining companies are cutting production because of
deteriorating profitability.
As for steelmaking materials,
prices of scrap metal, which is melted mainly in electric furnaces, have fallen
further in the Kanto region surrounding Tokyo. For now, electric-furnace
steelmakers' purchase prices are slightly less than 25,000 yen ($207) per ton,
down 6% from a month earlier. In reaction to easing market conditions in Asia,
Japan's export prices of scrap metal have sharply declined since the beginning
of the year.
Not all fun
At the end of January, Nippon Steel & Sumitomo Metal
upgraded its group pretax profit forecast for the year ending March 2015 by 10
billion yen to 410 billion yen. Kyoei Steel, Japan's largest producer of steel
bars, increased its forecast by 3.5 billion yen to 12.5 billion yen.
On the other hand, lower prices in
steelmaking raw materials have prompted general contractors and other steel
consumers to push for price reductions. Prices of deformed bars used to build
condominiums fell 3% from the beginning of the year to roughly 61,000 yen per
ton.
Prices of hot-rolled and other thin
steel sheets also slid 1-2%. A decline in demand after Japan's consumption tax
hike in last April and plunging steel prices in Asian markets are also seen as
negative factors.
Source- steel guru