Chinese iron ore traders switch to coking coals amid soaring iron ore prices

It is reported that many iron ore traders find it hard to do business, as iron ore spot prices continue to boost against sluggish transactions meanwhile, Indian sellers put off deliveries frequently. In face of the soaring iron ore prices and few resources at ports, intermediate traders almost gain no profits. Some iron ore traders even shift to coking coal businesses and put iron ore trades aside.

Sources show that iron ore prices continue to hit new highs in 2011. Analysts predict that iron ore prices in China spot market might exceed USD 200 per tonne in near term. Currently, Indian iron ore prices have already gone beyond USD 190 per tonne.

Steel analysts point out that “A series of policies and measures made by some countries such as India, which put barriers to China iron ore imports, are the very reason for iron ore price hikes, indicating that spot iron ore prices might continue to go up after Chinese Lunar New Year holidays.”

A Chinese iron ore trader whose company imports iron ores from India, Ukraine, Australia, Russia and other countries said “Several shipments of iron ores we ordered from Indian traders have been put off deliveries for half a month. The company is currently concerned about whether Indian iron ore traders will carry out the contract, let alone profit negotiations. Iron ore imports from India have accounted for around 50% of the company total imports. The delay of deliveries by Indian side is a heavy batter to us.”

In addition, quality of iron ore shipments could not be guaranteed. The above mentioned iron ore trader said “For example, it is normal to receive 62.5% Fe grade iron ore shipments, when it is supposed to be 63.5% as formerly settled in contracts.”

In this case, some iron ore traders shift to sell coking coals. As an important raw material of iron and steel industry, coking coal takes up 30% of total raw material costs. Impacted by floods in Australia, global coking coal price skyrocketed in mid-January. According to analysts, Australian coking coal exports account for two thirds of global trade and coking coal export volumes from flood areas in Australia take up around 90% of the country total share. Although Australia reiterated that the floods have little impact on the supply, bullish anticipations on coking coal price are still much enhanced in the market.

According to source from a steel mill, international coking coal prices have currently leaped to more than USD 300 per tonne compared with USD 200 per tonne in December 2010. From the aspect of demand in China, coking coal demand would increase greatly in March a peak period for steel production. Therefore, domestic coking coal prices will have large scope to go up in the next few months. It is reasonable for iron ore traders to switch to coking coal businesses in such difficult situations.

(Sourced from MySteel.net)