Shanghai Securities News reported that pattern of steelmakers' demand for iron ore may experience adjustments due to tight coke supply.
1. Iron ore supply remained tight during 2004 to 2008 with rising price and falling quality.
2. Hand coking coal contract price decreased by 8% and 15% respectively in 2006 and 2007.
3. Prices for coking coal and coke kept firm from 2004 to the end of 2007.
Many domestic steelmakers turned to cheap low grade iron ore, which consumed more coking coal but might bring down total cost. However, this will not be the case in this year. Export price for Australian coking coal has jumped 200% to 210% to USD 300 per tonne to USD 305 per tonne from USD 98 per tonne in fiscal year 2008. The coking coal price hikes will add over USD 100 per tonne to steel cost, given coke consumption of 400 to 500 kilograms per tonne steel.
China's domestic coke price gained CNY 1800 per tonne from the third quarter of 2007 to the middle of this year, equaling to USD 260 per tonne and driving up steel cost by USD 105 per tonne to USD 130 per tonne. In the meanwhile iron ore contract price rises by 65% to 79.8% or USD 30 per tonne to USD 42 per tonne in 2008, implying additional steel cost of USD 46 per tonne to USD 65 per tonne. In this year coke price advance will exert greater influence than iron ore price rise.
The report said coking coal now weighs upon steelmakers instead of iron ore. Contract price has climbed 65% for Brazilian iron ore, 71% for high grade Carajas fine and 86.67% for pellet. In theory pig iron making coke ratio will drop 1.5% and pig iron output will rise 2.5% if iron ore grade increases 1%.
The report also pointed out that tight coking coal supply might trigger iron ore demand pattern adjustment. High grade ore fine and pellet will be popular while low-grade ones such as Yandicoogina fines and iron ore from Australia's Robe River and India's Goa will lose competitiveness.
