Iran’s iron ore exports to China have been decimated by international mining majors that have flooded the market with a cheaper, higher-grade product. The glut has spoiled a once healthy niche trade for Chinese and Iranian panamaxes, adding more available tonnage to an already depressed open market.
Iran’s iron ore exports to China have dropped dramatically over the past three months. Chinese customs data quoted by Reuters indicates that volumes in June fell to 1.2 million tonnes from the 3.2 million tonnes shipped in April.
Commodities market analysts believe that volumes will continue on a downward trajectory for the rest of the year and it is highly unlikely that Iran’s export tally to China will come anywhere close to the 22.4 million tonnes achieved last year.
Although Iran is the fifth largest iron ore provider to China, its volumes are miniscule compared to that of major suppliers Australia and Brazil. Analysts are pointing their fingers firmly in the direction of the biggest three iron-ore producers, Rio Tinto, BHP Billiton and Vale, as the culprits causing the current supply glut in the market. It is claimed they overestimated Chinese demand and the resulting oversupply has caused iron ore prices to drop to around $90 per ton, half the levels achieved in 2011.
This has pushed higher cost, smaller producers such as Iran out of the game. Iran has been particularly hard-hit as its iron ore is noted as having a higher sulphur content and is, therefore, less desirable for Chinese steel mills, which are under heavy pressure to clean up their environmental act. Iranian iron ore has historically sold at $100 to $120 per ton. Its higher production costs make selling it cheaper unfeasible.
Almost all of its exports are sold into China, the bulk of it carried in panamaxes and, to a lesser degree, supramaxes. Last year’s volumes resulted in an estimated 360 or so shipments. The hesitance of international shipowners to do any Iranian business, despite the Iranian mining industry not being sanctioned, has left things firmly in the hands of Iranian and Chinese-owned tonnage.
Dry bulk brokers believe that the ongoing decline in Iranian iron ore exports is adding to the woes already plaguing the Asian panamax markets. The closed nature of this niche trade makes it difficult to determine just how much is carried in Iranian ships versus Chinese ships. Sanctions preclude the Iranian bulkers from being traded in the open market but dry bulk brokers in Asia note that the number of Chinese panamaxes looking for work in Asia is increasing rapidly as Iranian exports decline.
This is unwelcome in a market already hit hard by Indonesia’s ongoing ban on unprocessed mineral ores. (See also Breach in Indonesian ore ban, page 31.)
