Iron ore prices leap to near 10-year high in global market

Steel prices in the country could be in for some upward movement after iron ore prices in the global market have surged to near 10-year highs.

Mining.com website, quoting Fastmarkets MB, said that benchmark 62 per cent iron ore fines shipped into Northern China were traded at $175.05 a tonne cost and freight on Thursday.

The rates were nearly five per cent higher compared to February 17 trade.

The sharp price spike has been attributed to China’s return to the global market after the lunar new year.

Iron ore with 63.5 per cent ferrous content, which is ruling at $169.50 has, gained nearly seven per cent since the beginning of the year; while the 62 per cent ferrous content ore has increased 5.61 per cent.

Iron ore gains have resulted in steel prices rising over four per cent in China, the major producer of the commodity.

According to Trading Economics website, hot-rolled (HR) coil steel futures in China have reached a two-month high of 4,402 yuan (₹49,381) a tonne on hopes of renewed demand after the Chinese New Year.

Indian steel prices

The rise in global iron ore prices come on the heels of a correction in Indian steel prices.

“Steel prices had increased from ₹32,000 a tonne to ₹55,000 between June and December. After that, there has been a correction,” said an executive with a leading steel firm. He spoke on condition of anonymity.

Indian steel prices increased 55 per cent between June and December last year. This led to Minister of Road Transport and Highways Nitin Gadkari writing to Prime Minister Narendra Modi expressing concern over the increase in steel prices.

His primary concern was that steel prices had been raised four times during October-December quarter and it could result in infrastructure project costs rising.

Union Finance Minister Nirmala Sitharaman stepped in to help steel users and MSMEs (micro, small and medium enterprises) in the Budget tabled in Parliament on February 1.

“We are reducing Customs duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal recyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to March 31, 2022,” she said in her proposal.

In addition, the Centre revoked the anti-dumping and countervailing duties on certain steel products until September 30, 2021.

“Actually, there was a 20 per cent correction in steel prices. Prices have been adjusted higher after that and now the total correction stands at 15 per cent,” said the executive, adding that prices were still considered high.

Currently, Indian HR steel prices are ruling around ₹47,800-48,000 a tonne.

An industry official, who did not wish to be identified, said the steel price movement was arrested after a hue and cry was raised over the spikes last year.

“But iron ore and coal are two major raw materials for the steel sectors. There will be some impact of the surge in Indian steel prices,” the official said.

He said that the July-September and October-December quarter were good for steel companies as supply and demand matched. Demand from the infrastructure sector was good.

Last year, steel prices were hiked by the producers from June mainly since demand recovered 90 per cent of the pre-Covid levels.

During the nation-wide lockdown, particularly between March and June, the capacity utilisation in the steel sector was 25 per cent, putting pressure on the companies to look for a way out through price spikes.

In addition, supply of iron ore, the main raw material for steel firms, turned tight as small mines shut down during the Covid-19 lockdown.

The official said that steel firms would have to enter into long-term contracts for purchase of iron ore rather than look to buy from the spot. “Those who entered into long-term contracts have not voiced any concern. You enter into a contract and then if spot market prices are low, buy from that too,” he said.

“There could be at least a marginal impact on steel following the rise in iron ore prices,” he said.

The steel firm executive said prices could ease over next couple of months as the additional liquidity in the market pumped through various stimulus schemes by many nations could be sucked out.

“Once the excess liquidity is removed, prices will find their realistic value,” he said.

However, the industry official said these were basically market sentiments and the industry should be performing well going forward.

China buying

The current spike in iron prices comes on heels after a softening of the rate earlier this month. Late last month, prices gained after data showed that China, which accounts for about 70 per cent of global imports, bought 1.17 billion tonnes of ore in 2020, a three-year record.

Globally, iron ore prices softened after December peaks as Chinese authorities said the steel industry must reduce its crude steel output this year as part of low-carbon initiatives under the country’s 14th five-year economic plan.

Last year, iron ore prices rose 20 per cent in view of China’s record steel output and shortage in supplies as some were affected by Covid-19.

Australia, which is China’s main iron ore source, expects the Chinese demand to remain strong but shipments could drop marginally during the current marketing year (August 2020-July 2021).

According to the World Steel Organization, China accounted for 56.5 per cent of global steel production last year with total world output dropping 0.9 per cent to 1.86 billion tonnes. China’s production, however, increased to 1.05 billion tonnes from 1.01 billion tonnes during the period.

According to Australia’s commodity research unit ABARE, iron ore prices will likely ease to $80 a tonne by the end of the year and further to $75 in 2022.

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