China's demand for iron ore surge significantly as reported by many sources. World Steel Association reported that China's domestic production (run of mine) in the first 11 months of 2009 rose by 6.1% to 790.54 million tonnes. Meanwhile imports by China registered 565.86 million tonnes in the first 11 months, an increase of 38.4% y-o-y. The stock of iron ore at China's seaports in late-December 2009 saw an increase of 0.43 million tonnes to 66.07 million tonnes, when compared to November 2009.
Source: World Steel Association
Cash price of 62 percent iron ore delivered to China saw a robust increase to 124 USD per tonne on January 5, 2010 and further increased to 131.2 USD per tonne in the next three days. Metal Bulletin reported a significant increase of daily iron ore fines (63.5%) cft main China port prices in January 2010 by 3-4 USD per tonne each day to 134 USD per tonne in the middle of the month.
Source: Metal Bulletin
Improving demand from core contract buyers outside of China was also reported to be significant. Major iron ore miners have boosted up their capacity utilization to serve recovered demand and have revised their global output forecast. Iron ore exports from Australia's Port Hedland harbor was found to have increased by 41% in December 2009, when compared to the same period of 2008. Despite the increase in iron ore production, Goldman Sachs reported signs of supply constraints for iron ore, notably due to a lack of spot cargoes.
Although fuel price has increased significantly leading to a substantial increase in transportation cost in late 2009, there was a drop in freight rate in January 2010. According to Steel Business Briefing, freight rate for cap size iron ore from Brazil to China almost doubled to 45 USD per tonne from October to December 2009. However, the rate dropped by 30 USD per tonne in January 2010. Freight rate from West Australia to China jumped from 11 USD pertonne in October 2009 to 24 USD per tonne in November 2009 and declined substantially to 12 USD per tonne in January 2010. Goldman Sachs foresaw that the freight rate will remain unchanged throughout the first quarter of 2011.
Source: Steel Business Briefing
Goldman Sachs also reported no change in Australia/Japan benchmark price forecast. However, the forecast for 62% Fe fines spot price for delivery in the first quarter of 2010 at China's port has been revised from 78 USD per tonne to 115 USD per tonne CFR. The forecast of the average spot price for the remainder of 2010 was revised from 85 USD per tonne to 110 USD per tonne CFR.
(1) West Australia to NE China
(2) Australia/Japan benchmark for Pilbara Blend fines
Source: Goldman Sachs