Iron ore prices soared again amid a decline in Iron and Steel Inventory in China

  • Apr 23, 2019 AEST
  • Team Kalkine
Iron ore prices soared again amid a decline in Iron and Steel Inventory in China

Iron ore prices soared in the global market, with the benchmark Iron ore 62% fines Fe Futures (CME) rose from the level of $92.91 (Day’s low on 18th April 2019) to the level of $93.20 (Day’s Close on 22nd April). Another benchmark Iron ore 62% fines Fe on Dalian Commodity Exchange also surged and marked a closing of RMB 627 (as on 22nd April), up by 0.88% or 5.50 points as compared to its previous close.

The factor which supported the iron ore prices in China’s domestic market was the shortage of supply across the 35 ports amid supply disruption caused by the production loss from significant iron ore miners such as Vale, Rio Tinto, BHP Group, and Fortescue Metals.

On the supply side, the inventory of iron ore in China declined amid fewer shipments across the Chinese ports. As per the data, the Iron Ore Inventory at Chinese ports declined by 2.46% and ended at 128.69 million tonnes (as on 19th April), down by 3.24 million tonnes as compared to the previously reported inventory. The fall in domestic inventory in China supported the iron ore prices, and the prices rebounded after a slight fall.

However, the Vale Brucutu Mine is again operational and investors may monitor if this possibly fill the supply gap, which might keep the iron ore prices stagnant in the global market for a while. The market participants should keep a close eye on the demand factor as well to further gauge the direction of iron ore prices.

On the demand side, the steel inventory in China fell. Chinese mills are expected to procure iron ore amid high steel prices in China and a fall in domestic inventory, ahead of May holidays in China.

As per the data, the steel inventory is China slipped by 0.94 million tonnes and ended at 14.55 million tonnes (as on 19th April), down by 6.09% as compared to the previously reported inventory.

The steel market reacted quickly over the fall in inventory, and the prices of hot-rolled coil (HRC) steel climbed at 0.25% as compared to its previous close, and closed at RMB 3980 (as on 19th April), the prices of steel rebar also inched up by 0.24% and closed at RMB 4100 (as on 19th April).

Note: we previously mentioned that the high steel prices could boost the iron ore prices.

As estimated previously, the high steel prices along with fall in steel inventory in China prompted steel producers to procure more iron ore, which in turn, supported the iron ore prices.

In the current demand & supply dynamics, the iron ore prices are looking balanced, and any weight on either side will decide the further direction in it. To gauge the price direction, the market participants may keep a close eye on the Vale’s Brucutu operations, along with mills activity in China.

High iron ore prices are catapulting the iron ore miners such as BHP Billiton (ASX: BHP) on ASX despite the second downgrade in the outlook of the company’s shares.

Previously a London-based investment bank – Liberum, maintained a sell rating on significant miners such as BHP and Rio Tinto (ASX: RIO), and in the recent event UBS, a global financial service provider, downgraded BHP shares from BUY to NEUTRAL.

As per UBS, the downgrade of shares of the mammoth is following the group’s expectation and estimation of a decline in iron ore and coal prices over the tenure of the next 6 to 12 months.

UBS’s stance on the shares predicts a decline in iron ore prices over a tenure of 6 to 12 months, which might have included the Vale’s Brucutu iron ore to fill the supply gap moderately. However, the precise estimation could be done once the supply from the mine hits the global market and the demand in the global as well as the Chinese market during that time.


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