20-Month Low for Global Iron Ore Prices

By Glenn Dyer | More Articles by Glenn Dyer

Global iron ore prices fell to their lowest level since February, 2020, in another day of sliding demand and plunging futures prices for the ore and steel products.

The slide in iron ore prices – which accelerated a week ago – is placing increasing pressure on the revenue and earnings of the industry majors – BHP, Rio Tinto and Fortescue Metals, as well as the budgets of Western Australia and the Federal government.

Prices slumped another 7% on Tuesday as more areas of the Chinese steel industry were ordered to cut production to stop pollution levels reaching critical levels.

The price of 62% Fe fines delivered to northern China fell $US7.66 to $US95.77 a tonne which took the fall in the past seven days to more than 26%, while the price of 58% Fe fines shipped by the likes of Fortescue metals and Gina Reinhardt’s Roy Hill fell 9% to $US67.70.

It was the third trading session in the last four that prices have fallen by 7% or more a day. Since peaking at $US237 a tonne in May, global prices for the key 62% Fines product have slumped nearly 50%.

The shares of BHP, Rio and Fortescue Metals Group have already reacted to the falls last week with drops of 2.3%, 2.5% and 2.9% respectively on Tuesday.

Some of that was a reaction to the fall in futures prices during Tuesday’s session, so today could see a smaller slide.

The prices are the lowest since February 2020 when the cost of 62% Fe fines, the global benchmark was around $US98 a tonne delivered to northern China

Pollution reducing cuts and falling steel product prices have helped drag prices lower in the past few days and the Dalian futures market’s iron ore contract is now at its lowest since early 2020 – just as the first wave of the pandemic was rolling through Wuhan and then other parts of the country.

The latest weakness has been triggered by production cuts – in some cases a new round – ordered by dozens of steel mills, sintering plants and steel processors in Hebei and Shandong provinces (containing the port city of Quingdao which is the pricing destination for iron ore imports).

The cuts ordered last week included China’s steel hub of Tangshan. On Monday night the north China steel production hub of Handan city in Hebei province was ordered to implement stricter production cuts at steel mills from Monday November 1 to November 7.

The move has been made is to mitigate weather-influenced air pollution over the period and comes just after the city finished implementing steel production curbs in September and October to limit the crude steel output in line with China’s policy to keep 2021 crude steel output to the same level seen in 2020 (ie, 1.065 billion tonnes).

Helping push prices down were flal sin the Chinese steel products futures markets for rebar (reinforcing bar used in the construction and housing sectors and China’s most used steel product) and hot rolled coal (used in cars). Both fell to their lowest level since February this year.

S&P Global reported that stocks of iron ore at ports and steel mills keep rising.

“Iron ore inventories at major Chinese ports have been building up since July, in lieu of production cuts needed to meet China’s 2021 crude steel targets.

“According to industry sources, inventories were well over 144 million mt by end-October.

“In contrast, there were around 130 million mt of port stocks during the same period of 2020. We might hit 155 million mt by end-2021,” a Singapore-based iron ore trader said, adding that the bearish steel demand outlook would only serve to support the oversupply of raw material,” S&P Global said.

With the northern winter approaching, life isn’t being made any easier for millions of businesses across a dozen or more Chinese provinces. To preserve power supplies for homes and hospitals etc, power rationing continues (despite all the hype of rising coal production. It is rising, but not by enough, as yet to bolster stocks at power stations to comfortable levels).

Since September, China’s steelmaking industry battled the power crisis, which had hit output and demand.

This was felt in at least 12 provinces, including Heilongjiang, Inner Mongolia, Shandong, Jiangsu, Zhejiang, Sichuan, Guizhou, Yunnan, Guangdong and Guangxi.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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