Oversupply of Iron Ore has led to a price drop in China
The month of September started with positive sentiments in China as they expected growth in economy with recent government intervention. National Bureau of Statistics reported that the China Purchasing Managers Index rose to 51% from 50.3%. Chinese were expecting demands from the Railway and Construction sector as the climate was in favor of construction activities.
Due to the depreciating value of Indian National Rupee, exporters based in India were looking forward to make use of the opportunity. The Iron ore in Indian domestic market experienced a tug of war between local sponge iron plants and exporters. As a result its price inflated to INR 200-300 in India. As Rupee depreciated against dollar the miners used railways as well as roadways for exporting Iron ore besides deferential freight charges by railways.
This created a situation of oversupply of Iron ore in China. The Iron Ore prices dropped due to imparity in demand and supply. By the end of September 1st week, Shanghai Steel’s Rebar future started declining. It closed at 3723 Yuan/MT on 6 September but the situation soared in the second week on 13th September, Shanghai Steel Rebar future fell to 6 week low at 3700 Yuan/MT.
This week the iron ore deals are taking place at USD 135 CFR. Traders are not ready to pay more for cargo due to sufficient stock for this month. In addition, national holidays in China start from 1 October to 7 October, 2013. These holidays will not favor the purchase of Iron Ore in the last week of September, which was predicted earlier. Iron ore stock available at port increased to 0.1 MnT as compare to 1st week of September.
Long wait of 7 days and increasing stock materials in the port has left traders with a baffling situation. The overall sentiment among Iron ore traders is low as the forecasted demand and the actual demand came about to be a total mismatch.