Usually in countries with a higher political risk and regulatory profile, global iron ore production is considered to be concentrated. Mined across 50 countries worldwide, the iron ore spot prices fell heavily last month, as Iron ore (Fe) is used to make steel (for buildings, cars, white goods etc.). The need for steel in construction increases when economies are growing, which drives the price up. Australia is the 2nd largest producer and the world’s largest iron ore exporter, accounting for about one third of global production.
As at the close of October 12, 2018 Fe, iron ore traded at a market price of $70.49 (US/t). When Platts started publishing daily assessments, the iron ore spot price became a mature benchmark in 2008. 62% Fe (CFR China) is the industry standard specification. With the benchmark hitting the highest level, Iron ore spot prices continued to climb on Friday since the middle of March. Supported by a draw in Chinese steel inventories and temporary production cuts in a major Chinese steel-making city, Steel futures continued to rebound. On October 8, 2018 since Chinese financial markets returned, in each of the past five trading sessions the benchmark has finished flat-to-higher adding 3.5% in the process.
Another reason could be a draw in Chinese steel inventories. Steel product inventory fell by 193,400 tons held by Chinese traders down to 10.65 million tons last week. A lot of attention has been given to the volatility of iron ore in the past few months, on the short, medium, and long-term future of iron ore could be worth to look at as it can vary a lot amid the recent volatility.
While Brazilian iron ore production increased 4% this year, it increased by 5% this year. Vale may be on a better side with China to combat pollution fears as it is seeking higher purity iron ore. The immediate slowdown in global growth can be caused due to the US-China trade war. Over the next 12 months which is the mid-future there is a chance of a global recession which may impact the prices. By 2020, the Australian department of Industry is saying that it can drop up to 12% in prices of what we have seen in the past 12 months. With this outlook investors can consider cashing in with big names for price gains like that of BHP Billiton limited, Fortescue Metals Group or RIO Tinto limited.
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