4. Rebar mills’ profitability takes a hit
IODEX & Rebar FOB China
• In 2009-2012, the spread between iron ore (price of Chinese imports – Platts
IODEX) and rebar (FOB China) remained stable, at about $440-450/mt. Over
the last two years, the spread was deteriorating steadily. It contracted by
$170/mt (37.5%) from $452/mt in 2012 to $282/mt in Q1 2015.
• Then IODEX and rebar prices declined evenly. Over the indicated period –
between 2013 and Q1 2015, IODEX fell by $90/mt or 38.5% from $145-
150/mt to $55-58/mt in March 2015. Percentage wise rebar price weakened by
the same 38% from $524/mt to $325/mt but in monetary terms, it weakened
more significantly - by $200/mt. Hence is such a dramatic drop contraction in
the spread between the two.
• The good news is that the spread between IODEX and rebar in China cannot be
much smaller than it is now: throughout 2014, Chinese mills operated at 0.85%
profit margin. Given that analysts’ predictions of iron ore price should stay flat
at $55-60/mt this year, China should not keep cutting prices much further.
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