What Is Happening With Iron Ore Prices And The Dilemma Of Iron Ore Miners?

  • Mar 18, 2019 AEDT
  • Team Kalkine
What Is Happening With Iron Ore Prices And The Dilemma Of Iron Ore Miners?

Iron ore prices inched up again, with Iron ore fines 62% Future (TIOc1) marked another uptick before settling at $86.12 on 15th March 2019. The prices marked another uptick from the level of $85.01 (closing on 12th March) after an initial rise to $85.98 (Day close on 13th March). The iron ore prices marked a high on Dalian Commodity Exchange (DCE) of Rmb 613.50 on 12th March 2019.

The prices soared as China’s domestic steel inventory dropped to 18.54 million tonnes (as on 8th March) and Iron ore deliveries across 35 Chinese ports climbed to 136.37 million tonnes (as on 15th March) as compared to 135.82 million tonnes for the week ended 8th March 2019.

The rise in port stocks marked an increase of 560,000 million tonnes of iron ore to end at 136.37 million despite lower arrivals in Shandong and Tangshan. The increase in the inventory was mainly due to the ban on Jingtang and Caofeidian port. Initially, the deliveries dropped by 1,000 mt to 2.42 million mt for the week ended 8th March on account of the ban across the two ports in China.

However, the temporary ban lift from both the ports from 12th March amid betterment in the pollution level across China uplifted the deliveries. The deliveries were almost 500,000 mt at Jingtang port on 14th March. The pollution level across the major cities are decreasing in China, which is expected to mark an increase in iron ore deliveries and lesser import is expected to decrease the iron ore inventory.

Both the factors supplemented each other and in turn supported the Iron ore prices.

Future Policy of Iron ore miners:

The iron ore miners have built a cash reserve amid the higher realized prices from the market and maintained a financial strength on the balance sheet. With the high cash reserve sitting with the iron ore miners, the big question which arises now is how the companies will place that cash?

The companies can either distribute the cash in terms of higher dividend or can place that cash for acquisition or exploration activities. The major iron ore companies such as BHP, Fortescue Metals, RIO, etc., are moving towards their respective fiscal year-end. The question and decision loom the market participants over the progressive action that will be taken by these companies.

To answer such a question, the factor which will be considered is the outlook of iron ore prices over the long run.

The iron ore prices are noticing a surge amid higher china steel output and a supply absence from the significant Brazilian miner Vale. The other major iron ore miners were quick to dive in and realized a profit in terms of high sales proceeds.  However, other than the development in Vale’s ban, the companies are noticing and responding to China’s increased stance on curbing the pollution level in line with Euro 6 standards. The decision of these miners to either distribute the reserved cash or reinvest it will depend strongly upon their outlook on iron ore prices over the long run and development in global economy along with demand dynamics of the iron ore.


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