Iron ore prices gained a bit more on Thursday after falling to sub ninety levels on Monday, but would the recovery continue ?

The Steel Index - Up 1.1%DoD to USD 90.30 a tonne after 21 month low of USD 89 on Monday

Iron ore futures SWAPS at SGX - Up 0.6% DoD at USD 89.77 per tonne

Dalian Commodity Exchange - Down 0.3%DoD to CNY 665 per tonne

While the Chinese demand for iron ore remains strong as mills are still producing at full throttle with a record high 2.2 million tonnes of crude steel on average a day in the first 5 months of 2014, the outlook for iron ore remains sluggish and USD 90 may not be the bottom although buyers interest is up

The first problem in the short term is the huge (About 113 million tonnes) low priced stocks at Chinese ports. Many of the owners are under severe liquidity pressure as banks have come down heavily upon financing amid irregularity probes. It is learnt that the price of iron ore lying at the ports is much cheaper than fresh seaborne cargoes

As per latest reports mining giant Rio Tinto is lowering its low grade iron ore prices following fellow iron ore miner Fortescue Metals Group by increasing discounts. Rio Tinto told customers on Tuesday the discount for its low grade product would be lifted from 6% to 13% from July 1, leaving it to receive roughly USD 73 a tonne reflecting greater supply of lower grade ore required for blending

However the bigger problem in long run is the huge surplus availability from major global miners, which is the prime reason for the slide of more than 30% since 2014 beginning. While, as per worldsteel forecast for apparent consumption, China would need about 80-85 million tonnes of additional ore per year in 2014 and 2015, the ramp up at Vale, BHPB and Rio adds to much more. However the Big 3 so far remain confident as their production costs are lower compared to junior miners and especially Chinese iron ore miners. IMX majority owned Termite Resources, which manages Cairn Hills iron project in Australia, is to be placed in administration.

China, which decides the global iron ore prices as it accounts for almost 70% of the 1.2 billion tonne seaborne trade, is continuing to slow down. China's GDP growth has been declining since 2010, when it stood at 10.4%. China’s reality sector, extended its slump in May 2014 as sales and construction dropped and investment growth slowed, threatening to drag on a recovery in the world’s second-biggest economy. National Bureau of Statistics data that home sales in the January to May period fell 9.2% from a year earlier by area, after an 8.6% decline in the first four months. New property construction dropped 18.6% this year through May and residential housing starts fell 21.6% by area. According to previously released data, growth in real-estate investment slowed to 14.7% in the first five months from 16.4% in the January to April period. It was the weakest increase since a 12.5% gain in the first eight months of 2009.

The housing downturn is still playing out and has shown no sign of turning around. The next few months will still be a tug of war between the housing sector and policy easing. As a direct fall out of slow activity in construction and housing sector which consumers nearly 60% of steel in China price levels have been on downward course relentlessly across all categories although rebar has been worst hit loosing more than USD 60 per tonne. Surprisingly, Hr has been least hit

This has resulted in aggressive stance by Chinese steel mills on the export front. Chinese finished steel exports in 5 months have jumped up by 34pct YoY 33.94 million tonnes of finished steel creating major challenges in almost all other countries & regions including US, Latin America and India. Compulsion of Chinese mills can be gauged from the low offers of drawing quality wire rods to India recently at levels close to USD 500 CFR Mumbai