Brazil’s iron ore exports are returning close to the
levels seen before the Brumadinho dam collapse.
Iron ore price could drop back to around $140 per tonne
by end-2021, and $120 per tonne by end-2022 as the market shifts into a
surplus, according to Capital Economics latest report.
“While China’s announcement that it will
crackdown on speculation and market irregularities has taken some of the froth
out of the iron ore market in recent weeks, we think the price of iron ore will
ultimately be driven even lower by less favourable fundamentals over the rest
of the year”, says the research consultancy.
Over the last week, the price of iron ore has dropped
back following Chinese attempts to temper commodity inflation through
warnings.
“ON THE SUPPLY SIDE, BRAZIL’S IRON ORE
EXPORTS ARE RETURNING CLOSE TO THE LEVELS SEEN BEFORE THE BRUMADINHO DAM
COLLAPSE”
Iron ore price on the Dalian Commodity Exchange dropped
6.1% to 994.50 ($155.59) yuan a tonne, just above the day’s low of 992 yuan
($155.20), its weakest since April 12.
In December last year, the market regulator in China
imposed a trading limit on iron ore futures that led to a dramatic decline in
volumes, which cooled the rally in prices for a few weeks.
“The rally has since resumed and prices
increased by another 40% or so by mid-May on the back of strong demand from
steel producers, despite trading volumes remaining well below 2020 levels”, says
Capital Economics assistant economist Adam Hoyes.
“We doubt that this current crackdown on
speculation will have much of an effect on the price of iron ore over the
months ahead”
For the research consultancy, market fundamentals point
to the iron ore price falling further before the end of 2021.
“On the supply side, Brazil’s iron ore exports are
returning close to the levels seen before the Brumadinho dam collapse, and
domestic production in China surged in March and April.”
Besides disappointing output in 1Q21, Vale CEO Eduardo
Bartolomeu told the Financial Times the miner can go back to 400 million tonnes
per year ‘if needed’.
“While stocks of iron ore held at Chinse
ports have been drawn down slightly over the past month, they are still nowhere
near the levels that would be consistent with the current iron ore price,” says
Hoyes.
According to the report, the withdrawal of policy
stimulus in China, which will probably be felt hardest in the construction
sector, should weigh on demand.
“As a result, we expect the price of iron
ore to drop back to around $140 per tonne by end-2021, and $120 per tonne by
end-2022 as the market shifts into a surplus,” says the research consultancy.
MINING.COM