Slowing Global Demand Will Push Downward Prices of Iron Ore in 2012, Create Domino Effect

Rising concerns on the global fiscal health of its trading partners have led China-based steel mills to adopt a cautious attitude in buying key ingredient iron ore.

Traditionally, around this time, Chinese steel makers are in a frenzy to restock the raw commodity iron ore in anticipation of the week-long holiday Lunar New Year break that starts on Jan. 23., boosting spot iron ore prices to surge.

Although the Chinese are still replenishing, figures are dismal compared from a year ago.

"There's some restocking activity but it's limited. Most of our clients are still hesitating to purchase too much raw material because the steel market is not that encouraging," a Shanghai iron ore trader said in Reuters.

"Chinese steel mills have no confidence in the market in the short term, demand is still low and we expect this to continue until February."

Spot prices of iron ore fines of 62 per cent iron content will range between $US150 per metric tonne to $US160 per metric tonne on the average, from $US168 per metric tonne in 2011, The Australian reported, based on data from the Steel Index, a London-based reference price supplier.

"This year prices will be lower," Steve Randall, managing director of Steel Index, said. "The consensus is for a fall of $US10 per metric tonne to US15 per metric tonne on average in 2012, to a range of $US150 per metric tonne to US160 per metric tonne, with high volatility."

In the previous year, iron ore's spot price grew 14 per cent higher over 2010.

Iron ore's record high spot price occurred in March 2008 at more than $US200 per metric tonne, a year when investor appetite for commodities boomed.

The slowing worldwide demand for iron ore has likewise hurt profits of capesize ships that haul them.

According to the Baltic Exchange, a London-based publisher of freight rates on maritime routes, daily rentals for capesizes have fallen 18 per cent to US$17,821, the lowest since Aug. 30, and by far the biggest since October 2008. Rates have dropped 46 per cent from the 2011 high of US$32,889 on Dec 12.

Earlier, the China Iron and Steel Association projected China's total crude steel demand for 2012 till grow 4 per cent to 700 million tonnes.