Iron Ore Prices Could Prove More Resilient Than Expected

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Anyone looking at the headlines could be excused for thinking iron ore, at least seaborne iron ore, is destined to fall over the coming 18 months.

Chinese steel prices are falling fast, down 12 percent from last year according to Chinese steel company Angang Steel, quoted in a Reuters article, pushing the firm into a $309 million loss in the first half of 2012. Other Chinese steelmakers are reporting sharp drops in profitability or have slipped into the red, according to another article.

Most Asian consumers imported less iron ore in June than in May from Australia’s Port Headland terminal, China down to 16.09 million tons from 17.42 million tons, and Japan down to 2.51 million tons from 2.73 million tons. Only South Korea bucked the trend, up marginally from 1.8 to 1.9 million tons.

But Korea is hurting.

Posco, the world’s fourth-biggest steelmaker, is cutting its full-year sales outlook as it sees Chinese demand slowing further and the luke-warm stimulus measures not having much impact before the year end, if then. The worry for Posco is that China’s chromic oversupply is driving exports to the highest level in three years.

Posco sells 60 percent of its steel on the home market and along with other domestic steel makers is looking at whether to file anti-dumping complaints. China boosted first-half exports of steel products to 27.26 million tons, the highest for a six-month period since 2008.

Elsewhere steel demand is at best flat, with Europe looking the most dire. Wolfgang Eder, the head of European steel body EUROFER, is quoted recently as saying Europe’s steel industry is in terminal decline and three-quarters of its capacity may be shut in the next two decades. At between 728 and 740 million tons of iron ore imports, though, China will remain the driving force behind global demand for the foreseeable future.

But HSBC is taking a more sanguine view, saying a number of factors will combine to maintain both the level of Chinese iron ore imports and prices next year and beyond.

Continued in Part Two later today.

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