Supply fears keep iron ore in tight range

Iron ore moved in a tight range on Wednesday, as firm Chinese buying restrained the commodity from a steep fall after hitting a 10-week high last Thursday. Supply disruption from mines across India supported the move. Experts believe the steel-making raw material will rebound to surpass the $200-a-tonne mark very soon.

The benchmark Indian origin iron ore, with 63.5 per cent of iron content, was trading at Chinese ports at $184-186 a tonne, compared to $191 a tonne last week. Australian origin fines (the term for ore pieces smaller than six mm) were trading at $182-184 a tonne. The commodity recorded a minuscule $1 decline from the previous day.

Spot prices of iron ore with 62 per cent iron content traded above $177 a tonne, a sharp decline from the record $191.7 the commodity had touched in mid-February.

“Firm Chinese demand is the main force behind the high price. China drives currently the entire steel and raw material industry, due to the country’s major focus on rising steel production,” said R K Sharma, secretary general of the apex trade body, the Federation of Indian Mineral Industries.

Export from Karnataka, constituting 25 per cent of India’s overall shipment, is on hold for the past year. Since a public interest suit in the apex court on the issue is scheduled for hearing this Friday, the industry remains currently uncertain on resuming shipment anytime soon.

China bought 6.8 per cent more ore in July as compared to May, at 54.55 million tonnes, the highest in four months. China’s daily crude steel output fell 4.3 per cent to 1.913 mt in July from the record hit in the previous month, as flat steel producers contracted output in the face of weaker demand over the summer. Total output in the world’s largest steel producing country rose for the first seven months, however, by 10.3 per cent to 410.36 mt from a year earlier, suggesting demand for iron ore remains strong.

Adding to the supply woes, India’s Supreme Court recently banned mining in the iron ore-rich Bellary district in Karnataka. Around 35 major mines in south Goa, another important producer and exporter of iron ore, constituting nearly 40 per cent of India’s overall export, is also facing a tough time due to non-renewal of environment clearances from the Union environment ministry. This has almost halted mining in other regions of Goa, too.

“India meets nearly a fourth of Chinese demand, which currently hangs in balance due to restrictions. The country’s inherent competitors, Brazil, and Australia, will not be able to meet India’s deficit in exports. Hence, prices are bound to go up further,” said Sharma.

Agreed, Haresh Melwani, CEO of H L Nathurmal & Co, a Goa-based iron ore miner and exporter, “There is no sign of hope for these miners to get environment clearances, as the local non-governmental organisations have strongly objected to it, due to apprehension over wildlife impact.”

Fimi reported 17 per cent decline in India’s iron ore exports at 97.65 million tonnes in 2010-11 as compared to 117.37 million tonnes in the previous year. Consequently, India’s ore production has declined by almost half in the past couple of months. In the commodity derivatives market, however, the price fell by 3.6 per cent on Wednesday, to trade at Rs 6,728 a tonne for near-month delivery on the MCX. The current level, however, indicates a nearly five per cent decline from the previous week’s peak level of Rs 7,129 a tonne.

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