Iron ore prices likely to fall to $120-130/t: Roger Manser

Consultant at Steel Business Briefing Roger Manser sees iron ore prices falling to USD 120-130 dollar per tonne. “We see a decline because of the weakening demand from China,” he said in an interview to CNBC-TV18.

He however says things are not as bad as they seem because Chinese demand is actually being mopped up by India and Brazil. “The demand in China is also still growing, even if it is growing at a very slow pace, so we do see the need for imported iron ore in China,” he added. Coming to India, Manser is surprised that India has been importing iron ore, because as a country it very rarely has. “There are two reasons for this – Chinese demand and the Brazilians. “Brazilians have got plenty of high grade iron ore, so we do see Indians taking the opportunity of buying which is probably rather cheap high grade iron ore from Brazil. Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: Experts see iron ore prices fall 20% due to weakening demand from China. We have also seen a rate cut from the PBOC which has come first time since 2008. In light of these factors, how exactly would you expect iron ore prices to move and do you see it go as low as USD 110? A: No. Those of us at SBB don't expect iron ore to go to USD 110. More likely it would go to anything between a USD 120 and USD 130 dry metric ton for 62% FE content. Certainly we do see a decline because of the weakening demand from China, but we have noticed that weakening demand in China is been taken up to some extent by something rather unusual, which is some buying by the Indians from Indian steel producers and from Brazil. So that will make up to some extent for some of the weakness in the Chinese iron ore market. Q: In May we saw slump of USD 10 in the spot iron ore market. Do you see the same trend emerging in June as well? A: Well summer is a relatively weak period in China and the price is based on CF Northern China. I do expect to see price falling to maybe to USD 120, but that is the maximum I think they would fall in the near future. The demand in China is still growing, even if it is growing at a very slow pace, so we do see the need for imported iron ore in China. It is coming in particularly from Australia, from BHP Billiton and Rio Tinto, and lesser from Vale and Brazil, which is the material that is coming into India at the moment. Q: Can you give us an idea of what do you see in terms of higher off take of iron ore from the Indian markets? What are global markets penciling in in terms of demand? A: India has traditionally not been an importer, which is why we are somewhat surprised by seeing imports into India in the recent days. I probably think there are two reasons behind this. One is the weak demand in China which we have spoken about. The other is Vale, the, Brazilians have got plenty of high grade iron ore which they want to sell. So we do see Indians taking the opportunity of buying which is probably rather cheap high grade iron ore from Brazil. In the last few weeks, it hasn’t been a long term trend, but it is something which we have noticed. We don't know whether it will continue, but given the difficulties of producing iron ore in India at the moment with all the restrictions in Karnataka and other places, it could well continue for sometime. Q: We understand that coking coal has been resilient compared to iron ore because of supply conditions. What are the recent contracts settling around and what kind of price trends are you expecting in coking coal? A: The coking coal prices have been around USD 120 and I don't see this likely to change. The market for iron ore as you say has been fairly steady. There has been demand from China, but if we look again at the medium term for China, then it is likely to be importing quite a lot of material from Mongolia, from Indonesia and so that would put downward pressure on the Australian FOB price. I don't see any major change in that because I think that sort of price is necessary on the cost basis in Australia, so I think that price is unlikely to suddenly collapse or anything like that. Q: How exactly is the demand environment panning out globally in the steel market? A: Not very well. At the moment, if you look at the latest economic data, you would see that we have a stagnating global economy. The latest global Purchasing Managers Index was around 50, which implies that markets are stagnating; not going up, not going down. Given the weak situation in Europe which is impacting most parts of the world, not all parts of the world because India and Russia still have quite strong growth, but in China, Japan, Brazil the markets demand for steel is certainly not strong at the moment. On the other hand producers are continuing to produce at quite high levels and that’s putting downward pressure on prices. Q: What do you expect for steel prices in Asia as well in the Indian subcontinent? A: The Asian region hasn’t been that strong. If you look at South East Asia or at Korea or Japan or India, the prices have not been that strong. I do see prices weakening over the summer months, the monsoon period in South East Asia and the vacations in the Northern hemisphere. I do see hot rock coil prices probably going below USD 600 FOB from China. They are currently at USD 610-620; they fallen USD 10 to 15 in the last two or three weeks. I do see them going down below probably blow USD 600 that’s on FOB China for hot rock coil.