Miners will receive near-record prices for iron ore and coking coal next quarter as the wave of selling that has hit other commodities has left the two important steelmaking ingredients almost untouched.
The contract price for iron ore from July to September will drop about 1 per cent from the current quarter's record levels, say analysts and executives. Coking coal contract prices are set to fall by about 5 per cent from current record levels, analysts estimate.
The prices of the two important bulk commodities play a crucial role in the global economy as they feed into the cost of steel and the price of goods ranging from cars and washing machines. They are also critical to the profitability of two of the world's largest heavy industries: mining and steelmaking.
The continued high prices for the steelmaking ingredients were likely to dent steelmakers' margins in the near term, analysts said. The price of steel on the spot market has slid in recent weeks on the back of soaring production.
But they bode well for the top miners of the commodities: Vale , Rio Tinto and BHP Billiton in iron ore and BHP Billiton, Mitsubishi, Teck Resources and Anglo American in coking coal.
Vale's and Rio Tinto's quarterly iron ore contracts are based on a three-month average of spot quotations for the period ending one month before the new quarter. BHP Billiton uses other systems, including one- and two-month averages.
Excluding freight costs from Australia to China, the average iron ore price between March to May, the period used to calculate third quarter prices, was about $170 (U.S.) a tonne, down 1 per cent from second-quarter prices.
At the same time, analysts expect coking coal contracts to settle at about $315 a tonne, down from $330 for the current quarter but still above the previous record of $300.
Markets are still reeling from heavy rains and cyclones this year that knocked Australian and Brazilian iron ore exports and flooded many coal mines. At the same time, demand from emerging economies such as China remains strong.
Murilo Ferreira, chief executive of Vale, said on Monday: "I don't believe in a slowdown in China, but rather a movement in the economic cycle. I expect a strong second semester for China."
Analysts expect spot prices to ease in the coming months as steelmakers de-stock. On Tuesday, benchmark spot iron ore - with 62 per cent iron content - delivered to China dropped to $171 a tonne, down 6 per cent since mid-April, but nearly three times higher than two years ago.