Iron Ore Price Surge Halted by Declining Steel Mill Margins

Following a significant surge in the price of iron ore after a Brazilian dam collapse, the price of iron ore has cooled slightly.

Much of this comes down to declining steel mill margins, as well as continued uncertainty over the US–China trade deal.

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Lower grade iron ore still in vogue, benchmark slips

According to Metal Bulletin via Business Insider, benchmark 62% fines fell 3.2% in Tuesday trading, dropping to $87.65 a tonne.

Meanwhile 65% fines fell for a second consecutive day, shaving 2% off to land at $100.50 a tonne.

58% fines however escaped the drop, picking up an additional 0.7% to sit at $70.38.

The price action in lower grade ore is potentially indicative of negative margins occurring at Chinese steel mills.

The rising price of iron has put pressure on producers of steel, driving the sustained bounce in 58% fines.

Furthermore, one Shanghai-based trader said, ‘It is not surprising that iron ore prices will pull back as some traders want to secure gains and wait to see the next move in the market,’ according to Reuters.

The surge in prices come as 70 million tonnes of iron ore output has been cut at the world’s largest miner, Vale SA in the aftermath of a deadly dam collapse that killed at least 165 people.

What are iron ore’s prospects going forward?

We have witnessed big gains for Fortescue Metals Group Ltd [ASX:FMG], and if the price continues to surge, Fortescue could stand to benefit further:

Iron Ore Price

Source: marketindex.com.au

That being said, there’s a couple of macro and fundamental factors that could be of concern. Each of which has their upside and downside.

These include:

  • The potential of a major turning point in the trade war around 1 March (though Trump may let the deadline pass)
  • Slowing Chinese growth (though a tax cut/stimulus measure may be put in place)

As a result, the waters look increasingly murky when trying to forecast which direction iron ore will go.

It is possible a short-term artificial surge may be hiding signs of weakness longer-term.

Regards,

Lachlann Tierney,
For Money Morning

PS: 10 Aussie Mining Stocks You Should Buy First Thing Tomorrow.


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. He is involved in three publications:


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