China customs warns of iron ore market 'financialization'

　　China has recently introduced many macroeconomic control policies targeting the steel industry, such as revoking export tax rebates and eliminating outdated production capacity, and it is particularly worrying that the iron ore market is gradually entering an era of "financialization," according to a report recently released by the country's General Administration of Customs (GAC).

　　Customs data shows that China imported 310 million tons of iron ore and ore concentrate in the first half of 2010, up more than 4 percent from last year. Imports were worth nearly 34.4 billion U.S. dollars, up nearly 53 percent from a year earlier.

　　The average import price of iron ore stood at 111.2 U.S. dollars per ton, up nearly 47 percent compared to the first half of 2009. In addition, the average import price grew in April and May in succession, and increased to nearly 140 U.S. dollars per ton in June this year, the highest monthly average import price since October 2008, 1.1 times that of June 2009.

　　The prices for 63.5 percent grade iron ore from India went up rapidly last month, and rose to 152 U.S. dollars per ton on Aug. 11. Furthermore, 19 major domestic ports stored a total of 79 million tons of iron ore as of Aug. 8, a figure near the record high.

　　Hu Kai, an iron ore analyst at Umetal.com, said that some steel producers indeed replenished their iron ore stocks last month, so overall the inventory increased, and the fact that domestic companies rushed to import iron ore has pushed up the prices in turn. However, the current high inventories suggest that the actual iron ore demand has not grown as fast as prices.

　　According to the report, the iron ore market is undergoing changes that are cause for concern. As the third-quarter iron ore contract prices continued to increase, steel producers are facing an increasingly difficult situation. A financial chain consisting of three links–quarterly pricing, iron ore indices and swap contracts–is beginning to take shape, and the price fluctuations will be even more uncertain.

　　The world's three biggest mining companies have started adopting a quarterly and monthly pricing system closely associated with the spot market in early 2010 in order to break the psychological barrier of steel producers and lead the iron ore market into a "financialization" era.

　　By People's Daily Online

　　Additional support provided by LOTO