Global iron ore prices are currently assessed at USD 55/MT, CFR China, down by USD 7/MT, CFR China as compared to last month. The prices had skyrocketed in Aug’16 and touched to the level of USD 62/MT, CFR China.
The major reason behind this decline in iron ore prices was the G-20 summit in the month of September in which steel mills were asked to cut steel production in order to control the environmental pollution leading to limited iron ore trade activities.
Let’s see what factors could make global iron ore prices to remain under pressure in the coming months:
1. Continuous increase in global iron ore supply
With the recent release of reports regarding Vale’s S11D operations,90% of the operational activity has been completed and operation is likely to start by 2017. S11D will inflow 90 MnT/year of iron ore. Another project named Roy Hill has started in Australia and is expected to reach full capacity to 55 MnTpa in early 2017.
So, starting 2017, these capacity additions will inflow more low-cost iron ore into China which will be harmful to domestic China’s crude ore miners.
2. Firm Chinese crude iron ore production
It is to be noted that Chinese crude ore production is firm and maintaining at levels above 100 MnT. In Aug’16, the country produced 115.1 MnT crude ore against 115.7 MnT in Jul’16.
Increasing low-cost iron ore imports is expelling out Chinese domestic iron ore miners which produce high-cost iron ore.
3. Increasing Chinese iron ore imports
Iron ore imports continue to increase by 8.4% M-o-M as well as 9.2% Y-o-Y with falling domestic production. In Aug’16, the country imported 87.7 MnT which was nearly highest to 88.4 MnT in the month of Jul’16.
As we all know that China imports iron ore more than two-third of the seaborne trade, Chinese steel mills prefer imported ore than domestic ore because of high iron content, tumbler index and low cost.
4. Increasing Chinese crude steel production and reducing steel prices
Meanwhile, Chinese steel prices are also falling indicating that all is not well and the country should seriously look towards steel overcapacity concerns. After a fall in steel production by 3.84% in the month of Jul’16, China’s steel production increased by 3% in Aug’16. The country’s ability to meet its production cut goals is becoming a matter of great concern.
Considering the above-mentioned factors, we can infer that with increasing supplies of imported ore, firm domestic crude ore production, and increasing crude steel production, prices may retreat from the current levels but may not collapse.
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