As predicted in yesterday’s edition, Wednesday’s surge in world iron ore prices to seven-year highs saw the prices of Australia’s major miners jump sharply on Thursday.
Prices jumped to $US136 .29a tonne (for 62% Fe fines) on Wednesday and rose again on Thursday – this time by a smaller amount of 79 cents to $US137.08. That’s the highest they have been since December 2013.
The driver was the news that Vale, the big Brazilian miner, and exporter had cut its final 2020 production estimate back to virtually no gain on 2019, and released a lower than forecast estimate for 2021 production.
Vale lowered its iron ore production guidance for 2020 to 300-305 million tonnes from 310-330 million tonnes due to the supply disruptions seen throughout the year, the company said on Wednesday. Its original forecast for 2020 was 340 – 355 million tonnes (from 302 million tonnes in 2019).
The 2021 forecast has been set at an initial 320 – 335 million tonnes which is lower than the first forecast for 2020.
That saw talk of a shortage of iron ore in the opening months of 2021 and that in turn saw the share prices of BHP, Rio Tinto, and Fortescue surge as well.
Fortescue Metals shares jumped 13.3% to a new record high close of $20.65. BHP added 4.9% to finish at an 18-month high $41.25, and Rio Tinto shares rose 6.9% to end at $112.20, its highest finish since 2008.
Shares in minor iron ore exporter, Mineral resources were up 7.6% to $34.28
Both BHP and Rio are also benefitting from the 25% jump in copper prices from the start of this year (and more than 70% since the bottom in the March sell-off). Lead, zinc and aluminium prices are starting to rise as well as the Chinese economy continues to expand.
The three firms added more than 44 index points between them, which more than offset losses elsewhere and left the ASX 200 up 25.1 points, or 0.4% to close at 6,615.3.
Commonwealth Bank commodities analyst Vivek Dhar says China’s iron ore port stockpiles have slipped for two consecutive weeks. The last time that happened was in early June.
“China usually accounts for 70 percent the world’s iron ore imports,” Mr Dhar said on Thursday.
“However, China’s impressive industrial‑led economic recovery from COVID‑19 has meant that China accounted for 76 per cent of the world’s seaborne imports in the first nine months of 2020.”
“China’s demand impulse should eventually weaken at some point next year, especially as China’s fiscal policy will likely move away from supporting China’s commodity-intensive sectors.”
“While our near term price forecasts face upside risks, we still think that iron ore prices still have a good chance of averaging $US90/t (62% Fe, CFR China) by Q4 2021.”
(They will average $US100 a tonne this year for the first time since 2013).