Nippon Steel & Sumitomo Metal Corp, Japan’s biggest steelmaker, said on Friday it had renewed a contract to buy 1.8-2.6 million tonnes of iron ore annually from state-owned Metals & Minerals Trading Corp (MMTC) over three years.
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The previous week’s proactive move to cut prices in anticipation of weakening consumption from Chinese steel mills into December amid tightening cash flow has failed to yield much in the way of sales, officials from domestic iron ore mines admitted. Iron ore for immediate delivery to China’s Tianjin port fell 2.4 percent to $40.60 a tonne, according to The Steel Index (TSI).
Rebar, a construction steel product, hit a record low of 1618 yuan ($US253) a tonne on the Shanghai Futures Exchange this week.
Now, loss-making mills are resorting to selling iron ore bought with letters of credit in a last-ditch effort to maintain cashflow for production as they seek to repay bank loans, many due at year-end, four traders and steel mill executives said.
Selling is also being spurred by the relentless fall in prices, as factories seek to reduce their exposure to further losses, he said.
Mills have previously sold iron ore when prices rose to make a profit, or to balance their raw material needs with orders.
Indeed, iron ore inventories at the Chinese ports have been rising slowly.
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Amid weak demand, stocks of imported iron ore at China’s ports rose last week to the highest since May at 87.65 million tonnes, data from SteelHome showed. Large, low cost ore producers such as Rio Tinto and BHP Billiton have boosted production, leading to massive oversupply to an already flooded market. “That is the spirit of competition that we play in”, he said. “When you have spreads compress, maybe you have Dalian buyers on the back of that (but) it really comes down to physical market sentiment at the moment and I think that will continue to weaken”, said a London-based iron ore broker.
