Iron Ore Prices Hit $190 per ton

Having finished replenishing their stocks prior to the Spring Festival, most domestic mills have held back from buying raw materials from ports, leaving a quiet market at the moment. There were 83.86 million tons of iron ore stockpiles at 19 ports as of last week, an increase of 1.57 million tons from a week before.

However, iron ore traders holding vast amounts of stockpiles are optimistic about future market in anticipation of tight offshore supply caused by rumors of India's decision to increase domestic supplies as well as rains and floods in Brazil and Australia.

As a result, Indian iron ore fines with 63.5 percent iron content were quoted at $187 to $189 a dry ton at China's Tianjin port on January 24, $50 higher than the contract price of $142 per ton agreed between Rio Tinto and Chinese steelmakers for Q1 shipment at China's ports. Factoring in other charges, the spot price of foreign iron ore has reached some 1,500 yuan per ton, translating into an increase in the production cost of steel by 250 to 260 yuan per ton.

The effect of the rising costs on the steel production could become stronger in March when steel mills will have few options but to pass the increases along to their end-users whose willingness to succumb might be under test assuming the oversupply pressure will likely persist until the end of this year.