The state-owned iron ore purchaser China introduced last year to enhance steelmakers’ negotiating power has yet to deliver the reduced iron ore prices mills had hoped for.
According to Reuters, approximately 30 Chinese steel mills have signed iron ore procurement contracts through the China Mineral Resources Group (CMRG), but one steel mill said it hadn’t enjoyed any price improvements to date.
“We have not received any cheaper iron ore prices and to be honest I don’t expect they can get better deals any time soon,” a purchasing manager for a state-owned steel mill said at a Singapore industry event last week, as reported by Reuters.
Other steel mill officials and iron ore traders echoed this sentiment, suggesting iron ore prices were no cheaper than what they could achieve independently.
The CMRG has overseen plenty of activity in the Chinese iron ore sector since its introduction last year, with the 30 steel mills in question accounting for approximately 300 million tonnes of iron ore purchases per annum.
But this hasn’t created any notable market shifts.
“Our cooperation with the CMRG is constructive … so far we have not seen a market-shaking change,” a mining company official told Reuters.
“It’s hard to say if more Chinese firms will put their contract bargaining under CMRG in the future. That would mainly depend on what CMRG achieves.”
And while Chinese steelmakers have been unable to achieve the lower prices they desire, they are required to pay commission for CMRG’s services, adding costs at a time when lower steel demand from an ailing property sector is impacting revenues.
Imported iron ore prices in China fell below $US100 per tonne (t) for the first time in six months on Wednesday last week, with 62 per cent seaborne Australian iron ore fines at the port of Qingdao trading at $US97.3 ($149)/t.
“Chinese prices for imported iron ore began a steep slide from late last week as pessimism intensified among market participants, and fundamentals for the ore stayed weak,” Mysteel said.
This pessimism also saw imported iron ore stocks from Chinese steel mills drop to a record low last week, where 64 Chinese steel mills had 9.37 million tonnes of imported iron ore sintering fines in stock according to a Mysteel survey for the May 18–24 period.
This was a 172,100-tonne decline from the week before and the lowest figure since Mysteel first launched the survey in July 2014.
“The volume was also 41.6 per cent lower than the same period of last year, Mysteel’s data showed,” Mysteel said. “Market watchers attributed the continuous decrease to the still-cautious buying from many steel mills.”
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