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Iron ore prices gained on Tuesday, trading at $83.97 a tonne according to Fastmarkets MB, and making up some lost ground after a sharp retreat at the start of the week.
The steelmaking raw material has shown surprising resilience – averaging above $90 for 62% Fe fines imported into China so far this year – in the wake of the covid-19 outbreak that began in the central part of the country at the end of last year.
Iron ore prices have been underpinned by hopes that China, responsible for more than 70% of the world’s seaborne iron ore trade, will spend massively on infrastructure and construction to revive an economy devastated by the coronavirus.
In a note, Wood Mackenzie research director Paul Gray points out that remarkably, the Q1 iron ore price is still averaging above the commodity specialist consultancy’s pre-crisis forecast of $85/tonne in December 2019.
“We are not yet looking at a glut of seaborne iron ore. But risks are escalating, and the balance is tilting towards a bigger hit to iron ore demand than supply”
Wood Mackenzie research director Paul Gray
The strength in the price “is largely due to the resilience of Chinese hot metal production coinciding with supply side constraints in Brazil and Australia,” says Gray, but weakness lies ahead:
“We are not yet looking at a glut of seaborne iron ore. But risks are escalating, and the balance is tilting towards a bigger hit to iron ore demand than supply.
“Targeted financial stimulus aimed at steel intensive infrastructure should cushion the fall, but our pre-crisis forecast for an annual average price of $80/tonne CFR is undoubtedly at risk and subject to revision.
“Our analysis shows that prices should gravitate towards $70/tonne during the course of the year.
Woodmac warns, however, that prices could fall further due to weaker than expected demand and falling production costs – and in the instance of acute oversupply prices could fall as low as $50 a tonne.
That is the lower bound for prices, WoodMac believes, and at these levels prices “begin to approach the break-even of the major iron ore producers and a supply response becomes inevitable.”
Comments
Yi Zheng
The price of seaborne iron ore may go as low as $50 per ton this year, predicted by Wood Mackenzie, is over bearish. The annual average price for seaborne iron ore was $69 in 2018 and $93 in 2019. It increases 34% between the years. The iron ore price go up like catching an elevate but go down gradually step by step. That is observed in recent years. How much iron ore price will go down is really depend on the capacity to absorb the surplus stocks on the market by Chinese steel mills and traders. Last year as the price was up the stock level of iron ore come down. A certain amount of imported iron ore will use to rebuild the stockpile. Because the price hike seaborne iron ore lost market share in last year to both the domestic ore and scrap in the mix of steel-making raw materials. In China the incremental demand for steel-making raw materials in 2019 is equal to approximately 72 million tons of seaborne iron ore. When the price down the market share will be reclaimed by seaborne iron ore. So far this year the increase on seaborne iron ore imported by China is much faster than rise of its crude steel production. I expect the annual average price for seaborne iron ore in 2020 would not go below $70 per ton.