Global iron ore prices have fallen down by USD 7/MT in a month’s time. Prices have hit record low and also currently heading towards further decline. Starting Nov’15, spot iron ore fines (Fe 62%) prices began with USD 49/MT, CFR China and finally ended at USD 42.4 /MT, CFR China.
Global iron ore market is still cold. Dwindling demand and shrinking steel consumption in China have forced Chinese steel mills to cut output. Low profitability to Chinese steel mills has cut the utilization rate of iron ore among Chinese steel mills.
Moreover, weak steel demand in China is pressurizing more on iron ore prices, forcing it to move down further, which are now already at record low.
Market drivers of the month
1. Iron ore demand in China is extremely low. Steel output cut by major Chinese steel mills and lower steelmakers’ margins have implied more output reductions. There is hardly any Chinese steel mill, which is earning profit now, so demand may remain weak throughout the year end.
2. The ‘Global Iron Ore Glut’ has become a major matter of concern. The Australian Roy Hill project will add extra 55 MnT iron ore to glut caused worldwide. But, Roy Hill mine isn’t even the half bad news for iron ore market. The upcoming Vale’s project named S11D, a part of Vale’s massive Carajas complex, will add another 90 MnT of iron ore to miner’s capacity in 2016.
3. Influx of more low cost iron ore into the world’s top iron ore consumer and various expansion plans and upcoming new projects by Vale and Roy Hill, would definitely drive down iron ore prices.
4. Iron ore inventories in China have increased as compared to Oct’15. On 27 Nov’15, inventory at major Chinese ports was recorded at 90.0 MnT, which was highest since May’15.
5. China’s fading steel production is a major drawback for declining iron ore prices. More blast furnaces in China are likely to close by the year end; adding more pressure on iron ore prices. Few market analysts anticipate that if the situation persists, global iron ore prices will touch to a level of USD 40-42/MT by the end of Mar’16.
6. Apparently, steel consumption in China, the world’s largest producer and consumer, fell by 5.7% to 590.7 MnT in 1st 10 months of the year, according to the China Iron and Steel Association (CISA).
7. Falling steel demand in China has forced mills to cut output, but mills haven’t cut output quickly enough; in turn dampening steel prices.
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