Weekly Ferrous Scrap Prices by Metal Bulletin

Iron Ore-Flat prices, but rally may resume when China returns

By Manolo Serapio Jr

SINGAPORE Feb 7 (Reuters) - Thin spot iron ore trading activity on Monday kept prices steady near record highs with top buyer China off the market for the Lunar New Year holiday.

Prices are expected to resume their rally when the Chinese markets reopen on Wednesday on persistent worries about tight supplies through the first half of 2011.

"There is little expansion potential in the global supply chain while rampant Chinese steel production growth is bolstering demand conditions," Macquarie Research said in a note.

"We would expect the price to keep edging upwards post Chinese New Year, with $200/tonne in sight."

Price indexes, based on spot transactions in China, were unchanged on Friday but stayed near record peaks touched last month.

The Steel Index 62 percent iron ore benchmark .IO62-CNI=SI was flat at $185.60 a tonne, cost and freight delivered to China, just a tad off the record $185.70 reached on Jan. 21.

Metal Bulletin's 62 percent index .IO62-CNO=MB stood at $183.36, about a dollar away from its all-time high of $184.43 hit on Jan. 24.

The sharp decline in Brazil's iron ore exports last month along with continuously tight cargoes from India suggest that the iron ore market "will remain in an extremely tight situation" in the first half of the year, said Macquarie.

Iron ore exports from Brazil, the world's No. 2 supplier of the steelmaking ingredient, fell 29 percent in January from the previous month, as heavy rains disrupted shipments.

Supplies from India, the world's No. 3 exporter, had been tight because of a continuing ban on shipments from its Karnataka state. Macquarie said while a possible lifting of the ban this month could bring some material back to the market, the revamped state rules may make paperwork more rigorous and curb shipments compared to last year.

This could open the way for more exports from smaller suppliers led by Iran.

"As a result, 2011 is set to be a year where incremental tonnages from smaller suppliers will be crucial in keeping the market in balance amid immediate need for iron units to balance the books," said Macquarie.

"The need for this ore is representative of an undersupplied market, and will keep the iron ore price well underpinned through the usual price cycles we are likely to see in 2011." (Reporting by Manolo Serapio Jr; Editing by Manash Goswami)

Coking Coal Contract Prices May Gain 15-20% in Second Quarter

Coking coal contract prices may rise 15 percent to 20 percent between April and June from the previous quarter as supplies drop due to floods in Australia, the Indian unit of Standard & Poor’s Ratings Services said.

Prices may increase to $260 to $270 a metric ton, reducing operating margins at Indian steel producers, Manoj Mohta, head of Crisil Research, said in an emailed statement.

Floods since November have swept Australia’s Queensland state, shutting coal mines and cutting rail links in the supplier of about half the world’s seaborne supplies of the steelmaking material.

“Coking coal accounts for about 45 percent of the raw material costs of non-integrated steel producers in India,” Mohta said. “The run in coking coal prices will affect the margins of these producers, who are already vulnerable to an expected increase in iron ore prices over the next quarter.”

Some 85 percent of coal mines are “impaired by excess water,” Queensland Resources Council said Jan. 27. Lost coal production may total as much as A$9.5 billion ($9.45 billion), the council estimated in its State of the Sector report.

To contact the reporter on this story: Pratish Narayanan in Mumbai atpnarayanan9@bloomberg.net

Russia Coking-Coal Producers Raise Prices 11%, Metal Expert Says

ussian producers of steelmaking coal raised domestic prices for February through March by 11 percent on average from last month to 4,500 rubles ($153) a ton of semi- hard coking coal, industry publication Metal Expert said.

Alexander Andreev, spokesman for OAO Raspadskaya, confirmed the new price level and said for his company it represents an 8.5 percent increase from January. Vladislav Zlenko, spokesman for OAO Mechel, declined to comment.

Iron ore contract price seen at record in Q2 - Reuters poll

Reuters reported that iron ore contract prices are expected to jump to a record USD 165 per tonne in the second quarter, reflecting soaring spot prices buoyed by tight supplies and robust demand from top importer China.

The projected second quarter price for Australian fines with 62% iron content, free on board, represents the median in a poll of 10 analysts. It would mark a 17% rise from January to March 2010 period and the biggest contract price since the industry shifted to quarterly pricing in April 2010 after ditching a 40 year old annual system.

Contract prices are forecast to peak in April to June 2011 period before easing over the following quarters as global supplies recover, the poll showed. For the year, contract prices are seen climbing 25% to USD 153 a tonne.

Mr Mark Pervan, senior commodity analyst at Australia and New Zealand Bank, said that increased global steel output, firm Chinese demand and tight supplies should boost iron ore prices this year. He added that "There's a lot of dynamics suggesting there's probably more upside risks to prices than downside risks. There is supply coming online but we're still maybe one to two years away from some of the larger expansion coming through."

Spot iron ore prices have rallied since the start of 2011, pushing key indexes to record levels above USD 180 per tonne and pointing to higher contract rates for the second quarter.

Mr Colin Liang, analyst at Bank of America Merrill Lynch in Hong Kong, who expects contract prices to drop 8% next year from 2011, said that iron ore prices may peak this year and fall from 2012 as new supply comes into the market on average.

Analysts said that global seaborne supply of the key steelmaking component has been increasing by 20 million to 40 million tonnes in recent years, but production expansion plans by global miners Vale, Rio Tinto and BHP Billiton could boost annual supply by around 100 million tonnes starting 2012.

Spot iron ore market ambivalent during Spring Festival

Iron ore market has defied the customary pattern of cyclical swings, seasonality and holidays over the last 4 months. The climb of nearly USD 70 per tonne during the period is phenomenal by any yardstick given the undulations of the steel market both within and without China.

The run up is typified by ever elusive peak as each hike sets a new milestone and provokes prophesies which prove to be a misnomer with another climb. The tempo set by the ban on export from Karnataka has gathered speed with passage of weeks subsequently stoked by the devastating torrential rains in Australia and surge in domestic demand. Clamping on mining in Orissa, India and prolonged imbroglio over the legalities of mining perpetuated the spiral.

The domestic market in China has been on a steady course over the past 2 months accentuating the clamor for raw material to beat the hike despite record stock levels of over 80 million tonnes.

Piquantly the prices have remained escalating despite the absence of buyers. The USD 1 per tonne climb yesterday after a week’s gap has put to rest any thought of correction during the festival. It is learnt that traders are actively taking position as holiday buying is unusually active.

The current levels at USD 192 per tonne CNF, Chinese port has become a water mark wherein market is agog with anticipation of breaching the proverbial USD 200 per tonne mark after the holidays.

The final charge is dependent on plethora of factors unfolding after the holidays. The domestic market is certainly buoyant with re-bar prices having eclipsed the peak of 2009.

1. With slew of housing, infrastructure and rail project on the anvil demand looks effervescent.

2. Roar in international prices has catapulted Chinese mills into activity as their viability is alluring for nearby markets.

3. The cyclonic turbulence in Australia continues unabated. It is expected to regain normalcy not earlier than end of 2nd Qtr.

Global steel demand outlook weakens in 2011

MUMBAI (Scrap Monster): Steel demand outlook is weakening in domestic and global markets and analysts point out that the boom period prior to 2008 may never reappear in 2011.

The outlook for steel demand in Western Europe is deteriorating. At the start of the year there had been hopes that economic growth might reach 2 percent in the Euro-zone nations.

 Recently published figures show that it was only 1.6 percent in the first quarter.

 In some countries including the largest steel consumers Germany and Italy – it is weaker still and the outlook is negative.

In a global market, which is doing little to favor European manufacturing industry, the continuing strength of the Euro is eroding competitiveness. Higher costs for raw materials and energy are adding to the difficulties of steel-using manufacturers.

The domestic EU-15 economy is not much better. There is no sign of an increase in private capital investment or of industrial output. Top steelmaker, Arcelor, has forecast growth in industrial production of no more than 1.4 percent this year.

Market analysts also keep the view that China’s steel enterprises will maintain the low profitable production style in the future. 

Steel demand in China’s steel market is pegged at 614 million tonnes in 2010 and 657 million tonnes in 2011, with the corresponding rising level of 9% and 7% respectively.

Although demand for steel products will soon decline in 2011, the production capacity is still quite large. Therefore, overcapacity in steel production will be the reality also in 2011 China’s steel market. 

Generally, it’s expected that the 2011 China’s steel market will operate around the average industrial cost and the average price level will be higher than that of 2010. 

With stocks of steel still overhanging the market, this means apparent consumption is unlikely to show any increase for the foreseeable future. In addition, the strong Euro made the EU a net importer of steel in the first few months of 2005, putting further pressure on the market.

However the International Iron & Steel Institute forecasts that Europe, excluding the EU -15, will require 4.7 percent more steel this year than last. This makes the region one of the fastest-growing steel consumers in the world outside Asia.

However, these countries together use only about 26-27 million tonnes per year of finished steel versus 146 million tonnes per year in the EU -15, so even a rapid rate of expansion doesn’t mean many more tones.

 Consequently, European mills will have to keep their production rates still more firmly in check if they are to forestall a collapse in prices.

Also, World Steel Association pointed out that aided by stock-building activities and a recovery in manufacturing, apparent steel use in the US is expected to grow by 9.4 percent to 2011, bringing it back to 79.7 percent of the 2007 level.

In Central and South America, apparent steel use recorded a 23.6 percent decline in 2009, but WSA noted that the region's steel demand “is coming back strongly thanks to recovering commodity prices, exports and renewed capital inflows.”

The region's apparent steel use will grow by 28.2 percent in 2010 boosted by a strong rebound of 34.6 percent in Brazil. In 2011, the region's apparent steel use will grow by 9.1 percent to a historical high for the region and 14 percent higher than the 2007 level.