Find below the iron ore price table for March 7, 2013:
I expect the course of rebar will probably determine pricing from here.
Meanwhile, the news today is all about price manipulation and it is the AFR that has the scoop:
An executive at a Chinese mill reckons:
“I think they must actually have some proof now to be making this statement…I think that group would represent about 10 per cent of the spot market already,” he said. “They try to control prices, if it gets to $US160 [a tonne] they sell cargoes to keep it where they think it should be. If it was just one trader they couldn’t do it.”
As said yesterday, the NDRC is not some two-bit player. It’s China’s most serious planning entity and if its is coming after you, it will have purpose and proof. The reference to traders is presumably pointing the finger at the big players, Ruiganglian and others. A month or more ago, a report by Caixin fingered them:
One critical factor that helped large traders buy a huge quantity of spot iron ore was their relationships with the three international miners.
Ruiganglian was established in January 2003 and in August that year it expanded its business to minerals and coke.
Ruiganglian has good rapport with iron ore suppliers, an official from a state-owned company that has done business with Ruiganglian said.
“When the iron ore prices fell, no company could buy except Ruiganglian,” the executive director of the Shanghai trading company said. “But when the prices bounced back, other traders and steel mills wanted to buy, and three international miners didn’t sell to them.”
The international miners would ask them to buy iron ore from Ruiganglian
But, at the AFR today, another major (undisclosed) ore trader pointed back at the miners:
“If one of those guys wants to move the index they can offer out a few spot cargoes above the price and it will go higher,” he said. “There are very few cargoes offered on spot.”
This passing of the blame between big miners and big traders is really a neat set up. The AFR goes on with a quote from Morgan Stanley analyst, Joel Crane, who argues that in the past three months the big miners:
“appear to have offered a lower than average amount of spot cargo…A number of factors conspired in recent months to deliver unusually tight spot market conditions…Vale tends to rein in spot shipments over the Amazonian wet season…In India, the latest data indicate exports are currently annualising at about 12 million tonnes…Although we do believe exports will pick up in the second half of the year as there will be some easing in the restrictions in Goa.”
So, what do we make of it all? First, do I think there is anything to the story? The companies certainly have form. BHP and Rio have shown a consistent predilection for monopoly power, first in the BHP takeover proposal and subsequently in the proposed merger of the sales and marketing arms of the two firms. They know that between them they control supply. So does everyone else, which is why the merger was laughed out of court.
More evidence is available at The Australian:
Zhang Lin, an analyst at Lange Steel, a Chinese advisory firm, said the major iron ore suppliers were keen to keep the spot and longer-term prices higher, despite the volatility in global commodity markets.
“The phenomenon has existed for a couple of months since the iron ore market dropped,” Ms Zhang said. “The miners intend to prevent the price from declining further and are anticipating the market will warm up.”
And Fortescue distanced themselves from the practice:
“We are a price follower and we price off the indices. The current volatility is not good for suppliers or customers and we think ultimately the price needs to be a true and transparent reflection of the supply-demand balance,” a spokesperson said.
Next, does it matter? One thing you can be certain of is that whether or not it is in the long-term national interest, Canberra will do absolutely nothing, as it did during other episodes of iron ore gouging. As for the Chinese, the sound and fury over iron ore prices for China used to come from CISA, the steel mill industry body. That it has escalated to the NDRC is no small thing. It’s hard to believe that this is idle chatter. The Australian suggest this has been some kind of ongoing campaign:
It is understood that Chinese diplomats have consistently lobbied Canberra over Australia’s iron ore production capacity and prices.
Though what this could amount to is unclear; perhaps market reform, regulation or legal action? Beneath this dispute, there is another struggle going on over how iron ore is priced. At the moment, Chinese buyers negotiate iron ore prices with suppliers based on iron ore indices like Platts. Both suppliers and customers have backed new platforms to bring greater transparency to the process. The problem is they’ve backed different ones.
BHP has sponsored a new spot market platform called GlobalORE, which has the major suppliers on side. The Chinese have their own rival platform, which has the steel mills signed up, plus Fortescue.
NDRC jawboning might make sense in the context of this struggle.
At minimum, anyways, it is a shot across the market manipulator’s bow: a case for action is being built, better stop now.
Free australian investment in financial services in china for free chinese investment in iron ore, would that be a fair deal?
BHP and Rio have shown a consistent prediction predilection for
thanks, fixed
“prediction for monopoly power”
or predication maybe?
I had some iron ore stocks back in 2008 under the contract system. When the spot price fell heaps the steel mills reneged on legal contracts. There are no boy scouts out there.
It’s true but the monopoly play by BHP on Rio was the first move in the game. It was really stupid to my mind. Classic top of the cycle madness. Matched only by Allco big Qantas before its collapse.
“A recent surge in iron ore prices was caused by changes in demand, market speculation and “unreasonable” pricing methods, China’s top planning body said.”
NDRC have complained many times that high ore prices dampen profits in the steel sector, plain and simple. Nothing new here, just a little louder. As you can see above, NDRC claims a number of factors influenced price – the first two far more likely than the third.
““This is 600 Chinese mills versus whatever number of miners and the market is actually very liquid,” Melinda Moore, a bulk-commodities analyst at Standard Bank Plc in London, said by phone yesterday. “I don’t expect it to have an impact on price. It’s hard to know what the NDRC are trying to achieve with this because markets work as markets work.”
BHP said it was “very normal” for steel mills, traders and producers to both buy and sell cargo to balance their books. “This is also the case on both the Beijing and Singapore platforms,” it said. “Such transactions occurring on the platforms is to the benefit of all market participants in that it supports transparent market pricing and market liquidity.””
Business as usual.
Thanks for the press release. No more now.
MCA should send you to Beijing to pitch the case directly to the NDRC..
(Don’t forget to say your last goodbyes)
NDRC will take revenge at the first available opportunity to drive down iron ore prices. They won’t forget and they won’t forgive.