The iron ore complex finally took a deep breath yesterday, with prices tumbling across Chinese markets, as the Dalian exchange in particular listening to some steelmaker concerns that speculators are “ruining” (sic) prices. Spot iron ore was off by nearly 6% while futures fell back more than 3%:
S&PGlobal were quick to share their view that its not speculation driving the trend higher:
Iron ore boasts a deeply liquid spot market, with around 680 transactions (about 85 million mt) concluded so far this year for the main medium-grade fines used in benchmark 62% Fe assessments, or an average of about two and a half transactions every working day, according to data reported to S&P Global Platts. Such volumes make it very difficult for spot price assessments to diverge significantly from market fundamentals, partly explaining their attractiveness as a mechanism for settling long-term contracts.
Critics may point to the recent price surge as a sign that something is wrong and that prices have divorced from fundamentals. Looking at the last six years, that might seem a reasonable assertion: never have prices moved so much, so fast.
But cast your eye further back in time and you will find that such volatility is entirely consistent with history. Prices shrunk by two thirds from $170/dmt to $57/dmt in just three months during the 2008 Global Financial Crisis, then doubled between October 2009 and April 2010, before again shedding 47% in the following three months. In late 2012, they spiked by 74% in four months.
With global steel markets seeing their sharpest uptrend in over a decade thanks to post-COVID infrastructure spend, it should really come as no surprise to see iron ore prices surging to the current extent.
A near decade high price in iron ore still reflects fundamentals more than anything and despite the ongoing trade war with Australia, Chinese demand rules the roost.