Iron Ore Prices Rise to Five-Year Highs

Building on its multi-month highs, iron ore prices have risen 8% this month, and over 50% this calendar year, to reflect a post-market buying frenzy concerning supply issues.

Australia’s top export reached US$110.20 on SPGlobal’s iron ore index (IODEX), the highest in five years dating back April 2014.

Related: Fire Up Your Portfolio in 2019 With These 10 Aussie Miners.

Supply concern pushing iron ore prices higher

Joe Innace at S&P Global Platts explains what is driving Iron ore prices higher, blaming:

Rampant concern related to supply of mainstream Australian fines has led to active spot-market buying.

Offers increased and many buyers were paying these directly without much price negotiation.’

Prices were particularly strong in the June 2019 quarter to date, with CFR 62% fines of iron ore averaging US$96/dmt in April and May.

In an email, Mr Innace also said:‘Market participants are telling us that the current price level for iron ore reflects the tight supply expected in July and August. Sellers currently have strong bargaining power, as fewer cargoes are expected to load from Western Australia.’

Fastmarkets MB data reports that the spot price for 62% fines has increased by 51.5% in 2019, since it ended at US$72.73 last year.

While premium grade fines appear to be supported by a tight supply.

Companies such as BHP Group Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:RIO] could see a positive impact to their shares because of the iron ore supply issues.

On Thursday, investors saw a sudden jump in the last 10 minutes of the session, where Fastmarkets MB said iron ore’s price was driven by ‘persistent bullishness’ ­— lifting 3.3% to US$110.16 a tonne.

Catapulting the iron ore prices this year has been the unease around global supply meeting Chinese demand, combined with strong steel demand.

Will iron ore prices keep going up?

The global supply issues we are currently experiencing are set to continue for some months yet, according to the Australian Financial Review.

In Citigroup’s 12 June report, they said:

The trouble is that China’s steel mill margins are now very thin and property supply is outstripping demand with a genuine risk of steel production cuts in the second half of calendar [2019].

We expect weaker China steel production in 2020 as the restock tailwind winds down and real estate demand for steel contracts. Our calendar year 2020 iron ore forecast of $US70 a tonne is unchanged.’

But SPGlobal has dubbed it ‘good news’ for iron ore miners and investors, especially for those with shares in lower quality ore such as Fortescue, where 58% iron ore grade has more than doubled.

More to come.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

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