China cuts Indian iron ore imports

The price of iron ore in India has declined to a 30-month low after Chinese steel mills offloaded existing stocks before buying new ones and advanced by a month the maintenance shutdown to reduce losses.

Data available showed that the benchmark iron ore with 63 percent iron content hit a low of 118.1 U.S. dollars per ton while the 62-grade fell to 115.2 U.S. dollars a ton.

Experts said these levels were previously seen only in December 2009.

The dip in the demand for iron ore by China, the world's largest steel producer, only shows that the continued economic downturn in America and the Euro zone has an adverse effect on the emerging economies in Asia, including China and India.

In fact, the economic growth (GDP) forecast for China and India has been lowered to 7.5 to 8 percent and 6.5 percent, from over 10 percent and 8 percent earlier, respectively.

Growth in an economy is closely linked with consumption of steel since steel is the number one material used in construction and infrastructure development. "There is no activity on the ground. Chinese demand remained totally absent," said R K Sharma, secretary-general of the Federation of Indian Mineral Industries.

The price slump of iron ore in international markets will reduce India's role as a key exporter in Asian markets. Iron ore exports from all major Indian ports declined by a third in the first quarter of the current financial year to 12.9 million tons.

Inventories of both iron ore and various steel products in China have swollen by up to 46 percent so far this year to 100 million tons (mt) and 12.45 mt, respectively, counting major factories and ports, experts pointed out.

Experts further pointed out to avoid further restocking the Chinese government has urged state-owned steel companies to make destocking a priority in the second half of the year. Consequently, steel mills are abstaining from fresh buying.

Also, Chinese small and medium-sized steelmakers accounting for about half of the country's 550 mt of annual steel output are stepping up maintenance, in an effort to cut production and stem losses from a slump in steel prices and a surge in inventories, they said.

There is no recovery in demand for steel in sight and hence, a large number of mills in China have begun reducing their production, after having near record output levels in recent months.

An estimated one million tons of crude steel output will be cut some time later on the basis of a schedule of mills' plans for maintenance.

Experts said Chinese steel mills typically do not shut down production outright because of the high costs involved. Instead, they resort to maintenance as a way to cut output. Plant maintenance is normally scheduled during lull in demand in winter.

"The Indian market, by and large, remained resilient, with a marginal five percent decline in iron ore so far this year. The ongoing crackdown and closure of mines affected overall output across the country, reducing availability of ore for steel mills," said Amitabh Mudgal vice-president marketing and corporate affairs Monnet Ispat.

Some experts said that due to sharp decline in prices and swelling inventories some small traders were forced to sell their stocks at a loss, abandoning hopes for a strong rebound in the demand for iron ore and steel in the latter half of this year, given the bearish outlook in the global economy.