From the CBA today: Prices cut as cost deflation and new supply outweigh healthy demand We downgrade iron ore prices across our forecast horizon. Falling Chinese production costs, relentless growth in new cheap seaborne supply and slower growth in Chinese pig iron output relative to crude steel combine to weigh on the iron ore market even as Chinese and global
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Iron ore price, steel price and futures published daily
The contemporary seaborne iron ore price first emerged in 2003 when the Chinese development model shifted up a gear. Indian suppliers broke free of an annual contract pricing system that had been dominated by Australia, Brazil and Japan for decades.
As Chinese demand surged, traditional supply and pricing mechanisms could not keep pace. Indian miners in Goa and Karnataka had surplus supply and filled China’s marginal new needs outside the old benchmarking system.
But it still wasn’t enough and other non-traditional suppliers began to emerge in South America and Africa. These needed more dynamic pricing mechanisms and by 2008 Platts, Metal Bulletin and The Steel Index were publishing a daily iron ore price.
As the Chinese demand surge continued, by 2007, major Australian iron ore miners were charging enormous premiums to prices from five years earlier. The annual benchmarking system began to strain to the point breaking, including significant diplomatic tensions between Australia and China. This culminated in a proposed merger of BHP and RIO Tinto which triggered panic in Beijing as it feared an already supply-constrained market and soaring iron ore price would by made worse by monopoly pricing. The Chinese SOE, Chinalco, moved the buy a blocking stake in RIO Tinto.
However, the GFC intervened and deflated tensions as Chinese demand collapsed. But Chinese steel mills found themselves still tied to very high prices and an annual iron ore price benchmark that did not reflect the new reality. Many defaulted on cargoes and walked away from deals.
To fight the downturn, China unleashed an enormous fiscal and monetary stimulus that soon had China building more than ever. The demand for iron ore rocketed to all new highs. With the memory of contract defaults fresh in their minds, major Australian miners, led by BHP and CEO Marius Kloppers, abandoned the annual benchmarks, forcing Chinese steel mills to adopt a short term iron ore price using spot and quarterly contracts. Brazil joined in in 2010.
The spot iron ore price soared to all new highs and triggered a global wave of new supply from producers such as Fortescue Metals Group, Ferrexpo, Kumba Iron Ore, Anglo American and Sino Iron.
With the rise of the short term iron ore price market, iron ore derivative markets grew. First in the Singapore on the SGX and later in China as the Dalian Commodities Exchange and the United States at Chicago Commodities Exchange (CME). Iron ore derivatives could hedge and future price iron ore output.
These last developments coincided with the peak in the China boom and prices began to fall from 2012. After peaking above $190 per tonne, the iron ore price collapsed into the $30s in 2015 as new supply outstripped demand.
Ahead were still many years of oversupply, a lower iron ore price, consolidation and mine closures.
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The madness of West Pilbara (members)
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Daily iron ore price update (Vale parley)
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Bloxo: Iron ore to soar!
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West Pilbara cheap as chips?
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Sino Iron slowly ramps up
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Daily iron ore price update (property punt) (members)
Here are the iron ore charts for July 29, 2014: We’re all green today with physical chasing paper markets higher. Rebar futures joined the party. The BDI cape remains becalmed. Reuters has texture: “The sentiment towards the second half for China has really improved but we still believe that the stimulus we have seen is
Iron ore juniors fiddle while China burns prices
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Chinese developers pull up iron ore miners (members)
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Daily iron ore price update (closed)
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Iron ore futures fly on stimulus hopes
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Daily iron ore price update (port draw) (members)
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Why the big iron ore miners are stuffed too (members)
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Atlas fugged
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Iron ore miner profits are still stuffed (members)
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Rio plots monster pit
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