Can Iron Ore 62% Fe Go Above $90 Mark In The Short Term?

Can Iron Ore 62% Fe Go Above $90 Mark In The Short Term?

Iron ore prices surged amid higher world steel output. The benchmark Iron Ore fines 62% Fe CFR Futures CME rose from the level of $76.03 (which marked the closing price on 30th January 2019) to the level of $92.29 (which marked the closing price on 6th February 2019).

The world crude steel output marked an increase of 1.0% on a year-on-year basis and was reported at 146.7 million tonnes in January 2019. China, which is one of the world’s largest steel producer, produced 75.0Mt of crude steel, up by 4.3% on a year-on-year basis from January 2018 to January 2019. The rise in output of steel supported the iron ore prices, and the prices leaped, as iron ore is considered as a pivotal raw material along with coking coal for steel production.

The production loss of iron ore, from the ban on Vale Brucutu mine, which is expected to create a production loss of 30Mt annually, again supported the prices, and iron ore again moved up on charts to mark a value of $88.16 (which marked the closing on 21st February 2019).

However, amid environmental concern and China stance to curb emission in line with Euro 6 standards, pulled the steel production down, and ban on various china steel producing unit, hampered the steel output and in turn iron ore prices slipped from $92.29 (which marked the closing price on 6th February 2019) to $85.42 (which marked the day’s low on 4th March 2019), and the prices are presently hovering around $85.42.

Iron ore is mined majorly in Brazil, Australia, China, and India, with Australia and Brazil together dominate the iron ore export market with approx. 33% of the total export each.

Though the Steel production in China on year-on-year basis surged, but as compared to the previous month production level of 76.121Mt it declined to mark 75.0Mt in the month of January 2019, which was in line with the government actions to curb the pollution and reduce the emission generated from steel production.

Source: Thomson Reuters: China Steel Production (Monthly figures till December)Source: Thomson Reuters: China Steel Production (Monthly figures till December)

In the past event, China iron ore import surged from the level of 86.650Mt in December 2018 to 91.260MT in the month of January 2019, which in turn supported the iron ore prices.

Source: Thomson Reuters: China Iron ore import (Monthly)

Apart from that, the production loss from Vale is another factor which supported the iron ore prices.

The Global steel production looks steady as per the world steel association and is expected to increase from 1657.9Mt in 2018 to 1681Mt in 2019.

The developments in the trade talks are also supporting the commodity prices, as it is building optimism among the market participants that the global economy might start a recovery in the first quarter of 2019.

Considering the facts that the trade talks are progressing pleasantly, and world steel demand looked steady and expected to rise, plus production concerns over Vale Ban, we have a bullish stance on the commodity.


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