Why Are Iron Ore Prices Moving With A Snail Pace?

Why Are Iron Ore Prices Moving With A Snail Pace?

Iron ore prices are trading in a narrow range with benchmark CME Iron ore 62% Fe futures (TIOc1) trading in a narrow range of $85.15 (closing of 7th March 2019) to the present level of around $85.31 (closing on 11 March 2019). The sluggish movement in iron ore prices is mainly over the mix sentiments among the market participants.

China domestic steel inventory which dragged the iron ore prices down recently, marked a slight decline by 0.43% and noticed at 18.54 million tonnes (for the week ended 8th March) as compared to 18.62 million tonnes noticed the previous week ended at 1st March 2019. The Ore inventory remained unchanged and stood at previously reported 135.82 million (for the week ended 8th March). The fall in steel inventory is expected to open the bid for iron ore, as mills are expecting to replenish the raw material.

Once the steel inventory marks any steep decline, the Chinese mills will jump to cash in the opportunity to build the domestic steel inventory again.

Any such move by the Chinese mills could provide an impetus for the iron ore prices to boost up and surge above the current narrow range. However, some mills were reluctant to raise bids in the absence of any substantial decline in China domestic steel inventory, which in turned capped the gain in the iron ore prices. Traders and speculators are expecting the mills to buy, especially as Jingtang and Caofeidian ports reopened temporarily from 12th March to 15th March. Some steel producers still prefer to obtain the required raw material, as and when demand arises and domestic steel output decline. The current China Domestic Inventory remains steady and good. The Chinese authorities previously banned both the ports on 7th March on account of environmental concerns.

Many mills in Tangshan have already started to put blast furnaces on maintenance, partly to comply with production-cut obligations for the winter heating season, and partly due to a lack of sintered ore given the ongoing restrictions on sintering operations.

On the supply side, the major Brazilian ore miner Vale received a notification from the Mangaratiba city government, in Rio de Janeiro to suspend the activities on port Guaiba Island terminal, which further raised the concern over the supply disruption initially caused by Vale’s mine ban earlier.

However, Vale’s comment on the matter prevented any sharp impact of the news on the iron ore prices. The major Brazilian miner commented that the company holds all the required licenses for the regular operation of the terminal on Guaiba Island. Vale also cleared that it will soon resolve the issue to ensure restart establishment of activities at the port.

The miner usually shifts its mined iron ore from the southern system operations in Brazil through the Island terminal.

The market reacted slightly positive over the suspension of Vale’s activity, the miner is already in shackles over the previous issue of dam collapse in Brazil, and further postponement of the miner’s activity can cause a potential supply disruption. To reckon the direction of iron ore prices further, the investors are eyeing on the clues of any such potential supply disruption and China’s stance on environment improvement in line with Euro 6 standards. The speculators and investors will further take notice of the China domestic steel inventory.


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