Iron Ore Prices: A Mixed Bag

  • Oct 17, 2018 AEDT
  • Team Kalkine
Iron Ore Prices: A Mixed Bag

On 16 October 2018, Iron ore spot and futures markets traded mixed and continued to consolidate upon the recent gains. The spot price for benchmark 62 percent fines decreased by 0.2 percent to $71.50 a tonne, easing back from the multi-month high of $71.67 a tonne of last week. The higher grades also softened with the price for 65 percent Brazilian fines decreasing by 0.1 percent to $97.20 a tonne. Further, lower grades managed to buck the broader trend with the price for 58 percent fines lifting 0.8 percent to $41.61 a tonne, the highest level since 8 March 2018.

Moreover, the mixed performance from spot markets resulted in a pullback in Chinese steel futures on 16 October 2018. Rebar futures in Shanghai settled at 4,117 yuan, giving back ground after hitting a one-month high of 4,167 yuan earlier in the session. The moderation in rebar futures flowed through bulk commodity contracts traded in Dalian with iron ore and coke futures settling at 507.5 yuan and 2,448.5 yuan respectively, down from 509 yuan and 2,469 yuan as on 15 October 2018. 

In the short-Range outlook of World Steel Association which was released on 16 October 2018, it is expected that global steel demand will increase by 3.9 percent to 1,657.9 Mt in 2018 over 2017. As per the World Steel Association forecast, the steel demand will increase by 1.4 percent to reach 1,681.2 Mt in 2019.

Chinese steel witnessed high demand in the first half of 2018, driven by the increased demand in real estate and the strong global economy. However, it is expected that due to strict environmental regulation and continuous economic rebalances, the steel demand will decline by the end of 2018 and will continue to decline in FY 2019.

In 2017, the steel demand in U.S witnessed a strong growth due to increased consumer spending and business investments. However, it is expected that the Steel demand growth will be subdued in 2019 on the back of modest growth in auto manufacturing sector.

World Steel forecasts of 2019 is dependent on the Chinese policymakers, as they could decide to stimulate the economy which could escalate trade war with the United States. Due to the current trade war with the US and slowdown of global economy and other macro-economic factors, China is currently facing downside risks.

Mineral resources companies get highly effected by the fluctuations in the prices of commodities like iron ore. Australian company, BHP Billiton Limited disclosed in its FY 2018 annual report that change of US$1/T on iron ore price is having an impact of $233 million on the underlying EBITDA and it also has an impact of $163 million on profit before taxation from continuous and discontinuous operations.

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