While the major Australian miners appear to be shipping as much iron ore to China as they can produce, analysts say BHP Billiton and Rio Tinto must control shipments if they want to ensure spot prices remain strong.
China imported 21.6m tonnes of Australian iron ore in May, reaching 97.2m t for the year-to-date, up 41% on the same period in 2008, according to China customs data.
Both Rio and BHPB are operating at near capacity, with much of their output being sold on the spot market in the absence of a new benchmark agreement with China.
The miners are currently benefiting from spot sales to Chinese mills at a $4-5/tonne premium to this year’s benchmark price agreed with steel producers in Japan, Korea and Taiwan.
But analysts expect the market to “correct” in the face of high stocks and oversupply, causing spot prices to retreat closer to contract prices. “It would be in the interest of miners to squeeze the Chinese and restrict their spot contributions to keep prices higher than what benchmark CFR prices would equate to,” a London-based iron ore consultant tells Steel Business Briefing.
An analyst based in Perth thinks spot prices will remain close to current levels while talks between the miners and China continue. “I think Rio and BHP should be adjusting their shipments, though, because they may find they’re flooding the market,” he says.
In Tuesday’s Beijing News, unnamed Chinese mills claimed the major iron ore producers have already been restricting spot sales in China in a bid to push through the new benchmark price, SBB notes.
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