China’s iron ore imports to fall in September — report

According to SMM, slim profits and continuous declines in steel prices have dampened Chinese steel mills’ interest in the raw material. If that turns to be the case the next few months could be a crucial indicator of future demand.

Chinese purchases of iron ore typically jump in the fourth quarter as steel mills, which are mostly located in northern China, boost inventories ahead of the winter freeze.

There is something of a standoff at the moment as buyers keep waiting for prices to fall and sellers hope the need to fill warehouses outweighs the desire to get the cheapest price possible for iron ore.

Estimates on exports and prices released Wednesday by the Australian government suggest China imports may, instead, pick up. The country’s commodity forecaster, the Bureau of Resource and Energy Economics, lowered its 2015 iron ore price forecast to $92.40 a tonne from $94.60 previously, while also lifting its forecast for Australian exports to 735.3 million tonnes in the 2014-15 fiscal year from 720.7 million.

This forecast is broadly in line with several other respected analysts, with the consensus revolving around a return to levels above $90 a tonne by the end of this year or early in 2015 as high-priced supply leaves the market.

A lethal combination of bountiful supply and China’s slower demand growth has hammered iron ore prices to five-year lows, the hardest hit among industrial commodities this year. Prices slid this week below $80 a ton for the first time since 2009.

But some analysts believe mills may not rescue prices:

“Every day, the iron-ore price is coming down and steel mills seem happy to watch that happen,” UBS commodities analyst Daniel Morgan, was quoted by Financial Review as saying.

“The tension in the market isn’t there to want to go and sit on 60 days worth of stockpiles because in 60 days it might be cheaper. There’s no real urgency to rush out and build a stockpile,” James Wilson, analyst at Morgans in Perth, told Reuters.

“Everyone is nervous about the iron ore price at the moment; are we shifting from heavy industrial (phase) to a consumer-led industrial (phase) in some classical economics professor’s views on development, and does that mean China is going to be using less iron ore? Well these are always the challenges for a mining company to decide which commodities it needs to invest in,” Vale’s director of strategic planning Stephen Potter told a mining conference in Melbourne, SMH reported.

The solution, expert seem to agree, is to curtail supplies of iron ore in order to balance out the market.