Iron ore prices fell on Monday to six-month lows as Chinese steelmakers demand cargo deferrals or simply default on shipments – the clearest sign of the impact of a slowdown in the world's number two economy on global commodities markets.
The import price of 62% iron ore fines at China's Tianjin port was $130.90 at tonne on Monday, down 10.3% since the start of May.
The Financial Times quoted a a senior executive with a global commodities trading house as saying "China is hand-to-mouth at the moment" and traders are attempting to judge whether the situation today is a repeat of 2008:
Commodities traders are trying to ascertain whether the current deferrals mirror the wave of defaults in 2008 when demand collapsed amid the global financial crisis or instead is reminiscent of another wave of defaults later in 2010 after prices fell.
Commodities traders are used to some pushback from Chinese consumers when spot prices fall below contract prices and conditions are weak. Often Chinese consumers default on their contracts, only to rebook them later at lower prices.
Chinese import prices are now the lowest since November 9, 2011 when the steelmaking ingredient was recovering from a mini crash in October. During that month iron ore shed $60 a tonne from all time highs above $180.
At the time China's steelmakers forced the big three iron ore producers – Vale, Rio Tinto and BHP – into contract renegotiation, but this year the price of the commodity has been relatively stable trading between $140 – $150 for most of the year.
Steel production in China actually hit a record high in April with the country's mills forging over 2 million tonnes of steel per day.
Bloomberg reports thermal-coal buyers in China are also pushing to have shipments from Indonesia delayed – by as much as two weeks – as stockpiles in the country grows.
While coal for the power-generation industry benchmark for Asia fell to $95.95 a tonne, the lowest since October 2010, metallurgical coal – the other vital ingredient for steelmaking – seems to be holding up better.
Coking coal has been trading steady this year around the $200 a tonne level, down from a temporary spike above $300 a tonne following floods in Australia early 2011.
According to researcher Wood Mackenzie's principal metallurgical-coal analyst quoted by The Australian on Monday prices are "well-supported at current levels" and a slow rise in the near-term is likely.
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