Daily iron ore price update (boom times?)

The ferrous complex jumped again on May 23, 2022:

Clyde Russell is excited:

There are still concerns about iron ore shipments from Ukraine, which used to supply about 44 million tonnes a year to the seaborne market, mainly to European buyers.

Ukraine was the fourth-largest iron ore exporter, but Kpler data shows shipments plunging to zero from March onwards, after 2.32 million tonnes were exported in February.

Another smaller iron ore exporter, India, also looks set to see its shipments plummet, with Argus reporting on Monday that the government has imposed a 50% tax on exports of all grades.

This would effectively render India’s exports uncompetitive and they are likely to drop to zero. The South Asian nation shipped out 3.14 million tonnes in April, according to Kpler.

Another factor is China’s port inventories of iron ore <SH-TOT-IRONINV>, which have been sliding in recent weeks, even though they are still at levels above where they were at the same time in 2021 and 2020.

Inventories stood at 137.25 million tonnes in the week to May 20, down from a 2022 peak of 160.95 million on Feb. 18, but still above the 128.35 million from the same weeks in 2021 and the 110 million in 2020.

In some ways it’s not the absolute level of inventories that are key, it’s the pace at which they are declining, and the 15% slump since the February high indicates a fairly rapid drawing on available stockpiles and the potential for restocking demand.

There are also signs that China is ramping up its steel output after the winding back of winter pollution curbs and the lifting of some COVID-19 restrictions.

April output rose 5.1% from the prior month to 92.78 million tonnes, although this was also still 5.2% below the level of April 2021.

This shows there is still scope to ramp up steel production further, and this is also a quick way to boost the economy, because even if the steel produced isn’t needed immediately, it’s easy to stockpile for future use.

Overall, the picture that is emerging is that the long-anticipated China stimulus measures are starting to come through, COVID-19 is potentially being beaten back and the government is wanting a return to solid growth in the second half of the year. All positive for iron ore.

Meh:

  • Ukraine is still exporting via rail not ports. So the fall is more like 20mt.
  • Indian iron ore removal is bullish at the margin but is low grade so not so obviously price sensitive for the benchmark price.
  • Chinese inventories are interesting. I’m not sure why they are falling so fast. That will be bullish at the margin if demand rebounds.
  • Aussie and Brazilian miners need to ramp output to meet volume targets.
  • Chinese steel output is currently FAR ABOVE underlying demand and inventories are the highest ever. Why would either go higher? Output reductions are much more likely.
  • Especially since the Chinese recovery is going to be very weak given the deep and abiding freeze in property markets. And there is the coming trade shock coming out of sputtering US demand.

The iron ore outlook is slightly better today than yesterday thanks to India but that looks like less downside than more upside to me.

Paced by the wider deflation of the commodity mania.

Houses and Holes

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