Economy, Business And Markets

Iron Ore Predicament

Iron Ore PredicamentIron Ore Predicament

Iron ore prices are far from their highs of 2011-13 due to the slowing demand in China.

According to the latest reports by Platts, prices for CFR China imported iron ore with 62% purity decreased to $48.60 per dry ton on November 2.

The already low iron ore prices could be further down, as China’s excess steel production grows and its iron ore demand plunges, forecasted the Singapore-based Merchant Commodity Fund, to reach less than $40 per tons, which is close to the all-time low of $34 per tons reached in the second quarter of 2014.

Iran’s iron ore producers are not faring any better, Donya-e-Eqtesad reported.

According to Keyvan Jafari Tehrani, an official with the Association of Iron Ore Producers and Exporters, the only way left for Iranian producers to weather the storm is to cut down production and transportation costs.

However, he says waning demand for iron ore and China’s excess steel production are not the only threats to domestic iron ore producers.

“China will produce close to 811 million tons of steel by the end of 2015 and this figure is set to drop down to about 745 million tons by the end of 2018. Add this to the fact that Chinese steelmakers are required to export at least 80 million tons of their production every year, and it can be concluded that despite the shrinking figures, there will still be demand for Iranian iron ore in China,” Tehrani said.

The Chinese are also striving to cut down steel production costs. This means they would move toward using cheaper iron ore with an average purity of 55%, which is the exact quality offered by Iranian producers.

Tehrani’s remarks echo the same lines as some of the global iron ore giants, as the Australia-based BHP Billiton reported in February that it had reduced iron ore production costs in Western Australia by 29% over the second half of 2014 to preserve its diminishing margins.

“Iron ore transportation costs to China for Brazilians, who use 400,000-ton freighters, and for Australians, using cargo ships with a capacity of 170,000 tons, are about $5 per tons, while this figure reaches up to $10 per ton for Iranian producers for less than the half of the cargo they transport,” he said.

“It is also highly unlikely for Iran’s iron ore exports to exceed 15 million tons by the end of the current Iranian year (March 20, 2016).”

This is while Iran exported 22 million tons of iron ore in 2014, making it the ninth biggest exporter of this raw material in the world, according to data from the International Steel Statistics Bureau.