Iron ore price spikes by 4 per cent as China’s Covid outbreak spreads

China is reeling from the nation’s worst Covid-19 outbreak in years – and it has sent the price of iron ore skyrocketing.

A worsening Covid outbreak in China has sent the price of iron ore skyrocketing as pandemic disruptions spread across the nation.

On Friday, the price of the commodity jumped by almost 4 per cent as China’s mills grapple with ongoing supply shortages, mining.com reports.

In Tangshan, China’s top steel producing city, iron ore producers are preparing to reduce or halt production altogether as the transport industry stalls because of a temporary Covid shutdown.

Stay up to date with the latest market moves with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >

China’s Covid outbreak has impacted the cost of iron ore. Picture: Vincent Mundy/Bloomberg

The city, which represents 13 per cent of China’s overall production, is also being impacted by traffic controls at some of its mills.

According to consultancy Mysteel, most of the city’s blast-furnace steel producers are experiencing shortages of raw materials and auxiliary materials as a result of traffic controls introduced by the local government in a bid to stop the spread of the virus.

The company’s tracking found that seven blast furnaces across the city had been “hot-idled”, representing a loss of some 29,500 tonnes per day of molten iron output.

China’s current Covid outbreak – reportedly the worst the nation has seen in two years – is so significant that almost 80 per cent of its economy has been affected, which has led to supply issues for commodities.

In a note to clients, Macquarie claimed things were looking up for iron ore “as demand started to pick up following the end of the weak season, led by the infrastructure sector again while the machinery sector also improved”.

“Industry participants’ sentiment in the near-term steel and iron ore market remains positive this month … led by steel mills, while iron ore traders are still less bullish. However, compared with (the) previous month, sentiment has weakened,’’ the note reads.

Engineer Reita Guo and Technical Specialist Annaleise Prowse at BHP’s Jimblebar iron ore mine in the Pilbara region, Western Australia. Picture: Evan Collis

It comes just weeks after a move by China decimated Australia’s billion-dollar iron ore industry, in what was seen as a new bullying tactic.

Last month, a Chinese agency spooked iron ore companies around the world by accusing them of fabricating prices in a bid to ramp up the commodity’s value.

China’s National Development and Reform Commission (NDRC) and the State Administration for Market Regulation warned iron ore price information providers that they wouldn’t tolerate falsification.

“Related companies … should not fabricate or publish any false price information and should not drive up prices,” the statement said.

The perceived crackdown caused iron prices to plummet from a five-month high, with Michael Shoebridge, director of Defence, Strategy and National Security at the Australian Strategic Policy Institute, claiming it was a desperate measure to bring down iron ore prices.

China “knows that it can’t directly control iron ore prices and that Chinese steel producers are in internal competition against each other to get the iron ore they want,” Mr Shoebridge warned at the time.

“That’s driving prices. Beijing also has no grounds for claiming the big iron ore producers are doing anything other than smart commercial negotiations on price.

“This leaves Beijing trying to use levers like pressuring third party firms who report and predict prices as a way of putting pressure on the industry.”

– with Alex Turner-Cohen