Spot prices of key steel-making ingredient iron ore have been forecast to gain as much as 39 per cent in the fourth quarter of the year, spurred by a possible renewed buying spree from China and reversing the fall in demand in the last two quarters.
BHP Billiton, the world's biggest miner, believed the global supply and demand for steel, which zoomed in recent years thanks to China's huge appetite, has reached its zenith. Although demand for iron ore will continue to grow, its growth however will be much slower compared in previous years. As such, the high prices that iron ore recorded in 2011 may not likely happen again.
Based on data from China's National Bureau of Statistics, the country's iron ore production declined to 115.5 million metric tonnes in July, down by 8.1 per, which according to Bloomberg calculations was its biggest drop since 2008.
Current low prices of iron ore in the global market has been seen to likewise propel China's buying spree.
As of Aug. 21, the 62 per cent iron ore content arriving at China's Tianjin port dove to a low $106.40 per tonne.
"We're using almost all imported ore to feed our furnaces now as prices have become more appealing," Wang Liancheng, an international trading manager, told Bloomberg News.
Chinese traders likewise need to build on stocks in anticipation of the freezing weather disruptions in the winter months.
But with this frenzy to deplete stocks comes the possibility of iron ore prices jumping as early as next month, and could trade to as high as $148 per tonne in the fourth quarter.
Chinese iron ore consumers prefer to import the raw commodity rather than mine it since extracting it is way more expensive, what with only a 20 per cent iron content compared with the more than 55 per cent iron found in Australian ore.
However, although China's steel industry will continue to churn, this is still no guarantee that prices of iron ore will rally for a long time.
"We could expect a typical seasonal lift in ore prices in the fourth quarter, returning spot fines to levels above $125," UBS AG analysts said in an Aug. 20 report.
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