Iron ore prices hit 12-month high on Chinese demand
Iron ore could remain above $US100 a tonne for some time yet, say analysts, as China rebounds from the COVID crisis.
Iron ore prices have jumped to a 12-month high on continued demand for steel from China, as the world’s second-largest economy rebounds from the coronavirus crisis.
The spot price for Australia’s biggest export lifted to $US118 a tonne overnight, the highest price since July 2019, as China’s steel mill margins continued to keep up with the surging iron ore price.
“Steel margins are crucial to iron ore prices because they ultimately dictate the capacity of steel mills to spend,” said Commonwealth Bank mining and commodities research director Vivek Dhar.
“Construction relating to infrastructure has been a backbone of China’s steel demand since COVID‑19 restrictions were eased.”
Policymakers in China have lifted the budget for infrastructure projects by around 74 per cent this year, while property construction in China has also been supported by lower mortgage rates, Mr Dhar said.
Chinese steel production is the main driver of demand for iron ore. China accounts for about 70 per cent of the world’s iron ore imports.
But tightness in the iron ore market was showing signs of easing, Mr Dhar said, as China’s iron ore port stockpiles increase and the country continues to build up its steel stockpiles.
Still, demand was holding up better than anticipated.
“The increase is China’s iron ore port stockpiles since mid‑June shows more directly that China’s iron ore supply is starting to outpace demand,” Mr Dhar said.
“Our view that iron ore prices will moderate later this year is conditional on China’s demand impulse fading through the back end of 2020.
“While we still expect China’s steel demand impulse to eventually ease, a delay to our expectations points to upside risks to our iron ore price outlook over the next 6 to 12 months.”
He said that iron ore prices could remain over the $US100 a tonne mark for a while yet.
In early January 2019, the iron ore price was trading at around $US75 a tonne before the deadly Vale tailings dam disaster triggered a temporary shutdown of the company’s major mines in Brazil and sparked a price surge to around $US90 a tonne.
But then in April, the impact of Cyclone Veronica further tightened supply in the Pilbara which sent the price to nearly $US100 a tonne, before downgrades by Rio Tinto in May pushed the price up to nearly $US110 a tonne.
By late June 2019, the iron ore price had surged above $US120 a tonne after data showed record Chinese crude steel production in May, while stockpiles at China’s ports were at their lowest levels since 2016.
