Iron Ore

Iron ore rally draws Chinese regulators attention

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Iron ore with 63.5% iron content was quoted at around $140 a tonne for delivery at Tianjin, easing from a five-month high of $146 after Chinese authorities pledged to strengthen market supervision.

The National Development and Reform Commission (NDRC) and the State Administration for Market Regulation had said there was speculation in iron ore trading and warned in a statement iron ore information providers not to fabricate price hike information or drive up prices.

Regulators also vowed to crack down on any irregularities and keep the market stable with more effective measures.

“As authorities are paying close attention to iron ore, prices could weaken affected by market sentiment,” GF Futures analysts wrote in a note.

Iron Ore Prices
(Data source: Trading Economics- Graph: WMD)

Still, the steel raw material has had a roaring start to the year. The  spot price of 62% iron ore for delivery to north China, as assessed by Argus Media, is once again close to $150 a tonne, having gained some 68% since the 2021 low of $87, hit in mid-November.

Zhou Maohua, an analyst at China Everbright Bank, told China Daily the rally in prices is mainly due to market expectations that the resumption of production and work after the Spring Festival holiday in Asia’s largest economy will drive up demand as well as the export disruptions from heavy rainfall in southern Brazil in January.

Global investment bank JP Morgan said it had lifted its forecast 2022 average price to $US114/t from $US92/t previously. The bank’s analysts said China’s stronger-than-expected steel production, combined with an aggressive restocking of inventory levels and the country’s ports had “driven iron ore prices well above our expectations”.

China’s crude steel output is expected to rise in the first half of 2022 and then decline in the second half, with full-year production remaining within 2021 levels, S&P Global Platts reported citing industry sources and market participants.

Meanwhile, iron ore inventories, as assessed by consultants SteelHome, were 154.05 million tonnes in the week to Jan. 28, still higher than what they were at this time last year.

JP Morgan’s forecast is well below spot prices of about $US147/t and the average of $US134.69/t for the calendar year so far.

Iron ores are rocks and minerals from which metallic iron can be economically extracted. Iron is the world’s most commonly used metal—steel, of which iron ore is the key ingredient, representing almost 95% of all metal used per year. It is used primarily in structures, ships, automobiles, and machinery and is mined in about 50 countries.

The seven largest of these producing countries account for about three-quarters of total world production Australia and Brazil together dominate the world’s iron ore exports, each having about one-third of total exports.

China buys almost 70% of global seaborne iron ore.

Primary use: to make steel (98%)

Global production:  2.4 billion tonnes (est. 2020)

Top 10 producing countries: Australia, Brazil, China, India, Russia, South Africa, Ukraine, Canada, US, Sweden