São Paulo – Brazil sold cheaper iron ore to the Arab market in April this year. Each tonne left the country towards the region for US$ 144 in April last year and was shipped for US$ 127.8 last month. The drop was 11%. The price has also fallen since January this year, when it was US$ 138.7. Ore prices, which have been dropping worldwide as against 2011, reflect deceleration of Chinese demand, as the country is responsible for half the global consumption of steel.
Apart from that, however, the average price of ore exported to the Arabs is above the global average paid to Brazilian exporters as a whole, which was US$ 103 in April. The professor of the Economics Institute at the Federal University of Uberlândia (UFU), Germano Mendes de Paula, explains that the Arabs used different technology in production of steel, with equipment powered by natural gas, not coal. Thus, instead of using fine ore, they tend to use granulated ore or pellets, which is more expensive.
Although the price of ores is lower this year than last year, in comparison with early this year, there has not been much change. On the spot market in China, for example, the price was US$ 142 in January this year and US$ 145 last Friday (7). And analysts believe that the price should not change much by the end of the year. “Prices should be at between US$ 140 and US$ 150 in the second half,” said the investment strategist at SLW Corretora, Pedro Galdi. He said it may only drop to US$ 120 if there is substantial worsening of the global economy.
Brazil, however, has already felt the cooling of Chinese demand early this year. The same ore exported for US$ 103 in April this year was sold for US$ 125.7 in the same month in 2011 and for US$ 106.7 in January this year. Mining companies themselves, despite their belief in better prices from now on, have posted worse results in their balance sheets in the first quarter of this year.
The Economics and Politics professor at Rio Branco Integrated Colleges, Carlos Eduardo Stempniewski, explains how the lower consumption in China has made sale to closer markets a priority, due to logistics and freight costs, which has favoured producers in South African and Australia. “This has resulted in Brazil losing a little competitiveness in iron ore,” explained the professor, recalling, however, that Vale has a commodity terminal in Singapore, to supply the Chinese faster.
"Consumption in China dropped 25% early this year,” explained Stempniewski. Steel production in the country was 61.5 million tonnes in March, according to the World Steel Association. In January, gross steel production in China was 56.7 million tonnes, but in February it dropped to 55.8 million tonnes. Global production was 123.6 million tonnes in January, 120.8 million tonnes in February and 132 million tonnes in March.
Brazil exported US$ 227 million in ore to the Arab market in April. In volume, shipments were 1.7 million tonnes. In the same month in 2011, the country shipped 1.2 million tonnes, which generated revenues of US$ 180.8 million. There was growth both in volume and in revenues, according to the Ministry of Development, Industry and Foreign Trade. In the accumulated result for this year up to April, shipments totalled US$ 815.6 million, with 6.6 million tonnes shipped. Ore is one of the main Brazilian export products to the Arab world.
*Translated by Mark Ament
