Iron ore prices jumped more than 4% on Tuesday,
extending gains spurred by improved steel profit margins in China and
disappointing output figures from Rio Tinto and Vale.
According to
Fastmarkets MB, Benchmark 62% Fe fines imported into Northern China (CFR
Qingdao) were changing hands for $189.61 a tonne on Tuesday, up 4.29% from the
previous day – the highest level since 2011.
The high-grade
Brazilian index (65% Fe fines) also advanced to a record high of $222.80 a
tonne.
September iron ore on
China’s Dalian Commodity Exchange ended the daytime trading session 3.6% higher
at 1,100 yuan ($169.28) a tonne, following news that China’s crude steel
production jumped 19% last month from a year earlier to near a record.
The nation’s output of
the alloy is booming at the same time as a pollution crackdown has lifted prices and
benefited profit margins at mills.
“THE
SHORT-TERM OUTLOOK FOR IRON ORE PRICES REMAINED STRONG”
Daniel Hynes, senior commodities strategist, ANZ Banking Group
“Incredibly
healthy Chinese steel margins have been the real driving force behind iron
ore’s move higher over the past week,” managing director at Navigate
Commodities in Singapore Atilla Widnell told Reuters.
Rio Tinto’s iron ore
output in the March quarter dropped 2% on an annual basis, while
production at Vale fell 19.5% from the previous quarter.
BHP Group Ltd on
Wednesday reported a near 2% dip in third-quarter
iron ore production but said full-year output is expected to be at the upper
end of its forecast.
“With the market
relatively tight at the moment, it will certainly see any failure to meet
current guidelines as relatively positive for the price,” Daniel Hynes, senior
commodities strategist at ANZ Banking Group told Bloomberg.
Vale and Rio both
maintained their forecasts for full-year production, though a
slower-than-expected recovery at Vale could see the market reset its
expectations, he said.
Rio cautioned that its
guidance for the annual output of up to 340 million tonnes was
subject to logistical risks associated with bringing 90 million tonnes of
replacement mine capacity on stream. It also said that Tropical Cyclone Seroja
had impacted its Pilbara mine and port operations in April.
It was a “mediocre
quarter” for Rio, Tyler Broda, mining analyst at RBC Capital Markets, said in a
note. Quarterly production was 6% less than the bank’s estimate.
“Not all that much is
going in the right direction from a bottom-up basis for Rio Tinto as they
continue to tackle the various challenges at their operations and projects, but
main commodities iron ore and aluminum are both benefiting from the China
decarbonisation theme,” Broda said.
The iron ore market has kept a wary eye on the
still-tight global supply in the wake of a Vale tailings dam disaster in 2019 that had
prompted mine closures for safety checks in Brazil.
However, real-time
shipping data showed an improvement in cargo volumes from the world’s top
suppliers. Iron ore shipments by Australia and Brazil recovered last week after
two weeks of declines, according to Mysteel consultancy.
The short-term outlook
for iron ore prices remained strong, ANZ’s Hynes said, with Chinese steel mills
content to accept current high prices for their main feedstock while their
margins were so strong. However, he added the cost of ore was now well above
fair value, with the risk of a pullback later in the year if Beijing’s plans to
curb steel production to control greenhouse gas emissions start to impact
demand.
“If we saw a 1% fall
in Chinese steel production that would potentially wipe out about 15-20 million
tonnes of iron ore,” said Hynes.
Mining.com (With files from Reuters and Bloomberg)