Iron ore prices are marking a surge amid falling China’s domestic steel inventories and building Iron ore ports stocks.
China’s domestic steel inventory fell by 4.46% to end at 17.71 million tonnes for the week ended 15th March 2019. The fall in domestic steel inventory prompted the domestic mills to replenish the inventory level, which in turn supported the iron ore prices as to refill, the falling inventory mills need to purchase the very basis raw-material of steel production, i.e. iron ore along with coking coal.
The Iron Ore Inventory across the 35 ports in China also increased by 0.41% and reported at 136.37 million tonnes, which in turn marked a high import across the Chinese ports and in turn supported the iron ore prices.
The uplifting of ban on the ports of Jingtang and Caofeidian further marked rise in deliveries from these ports. This signifies the demand of iron ore in the domestic market which further accounted for the gains in iron ore prices.
The DCE Iron Ore 62% Fines marked an increase of 5 yuan and closed at 632 RMB/t (as on 18th March 2019) on account of level demand for the iron ore.
The recent Vale ban which concerned the mills across China and global raw material investors and speculators over the supply constraint has marked its presence again. After the recent ban in the Brucutu mine in February 2019, the Brazilian miner faced another setback, when a Brazilian court ordered Vale to stop operations at Timbopeba mine on 15th March 2019. The previous ban which was estimated to create a production loss of 30 million tonnes from the giant miner now account for a loss of 42.8 million tonnes of production as the ban on Timbopeba mine is estimated to create a production loss of 12.8 million tonnes per year.
The Brazilian giant is in dark clouds with many bans imposed on different operations of the miner. The company’s iron ore production is in shackles, and international commodity markets are discounting all the factors and in turn raising the premium on iron ore prices.
The recent notification received by the Vale from the Mangaratiba city government in Rio de Janeiro to suspend the activities on port Guaiba Island terminal further created a concern on Vale’s ability to come out to the limelight anytime soon and in turn supported the concern of supply crunch in the iron ore market which is supporting the iron ore prices.
The Vale’s competitors such as BHP, Fortescue, and Rio Tinto have already realized high iron ore prices and received high sales proceeds from the commodity. With the absence of Vale and its bumper stocks of iron ore from the market, these competitive miners are ramping up and taking advantage of the loophole in the supply chain. All major competitor miners are expected to present their financial results in August and are in a dilemma to either distribute the cash reserve accumulated by the high sales proceeds or reinvest it.
The array of factors such as falling China’s domestic steel inventory, rising port imports of iron ore across China and supply disruption caused by bans on Vale’s operations are supporting the iron ore prices and favouring the balance sheets of those who are still in the business and using the supply loopholes to their advantage.
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