The ferrous complex was firm on April 5, 2022 with Chinese markets reopening today: I am still nervous about the durability of this rally given the building headwinds to global growth and passing seasonal tailwinds but Morgan Stanley is more bullish. Marching on: Despite China’s Covid headwinds, iron ore is gradually moving higher – now
Iron ore price, steel price and futures published daily
The contemporary seaborne iron ore price first emerged in 2003 when the Chinese development model shifted up a gear. Indian suppliers broke free of an annual contract pricing system that had been dominated by Australia, Brazil and Japan for decades.
As Chinese demand surged, traditional supply and pricing mechanisms could not keep pace. Indian miners in Goa and Karnataka had surplus supply and filled China’s marginal new needs outside the old benchmarking system.
But it still wasn’t enough and other non-traditional suppliers began to emerge in South America and Africa. These needed more dynamic pricing mechanisms and by 2008 Platts, Metal Bulletin and The Steel Index were publishing a daily iron ore price.
As the Chinese demand surge continued, by 2007, major Australian iron ore miners were charging enormous premiums to prices from five years earlier. The annual benchmarking system began to strain to the point breaking, including significant diplomatic tensions between Australia and China. This culminated in a proposed merger of BHP and RIO Tinto which triggered panic in Beijing as it feared an already supply-constrained market and soaring iron ore price would by made worse by monopoly pricing. The Chinese SOE, Chinalco, moved the buy a blocking stake in RIO Tinto.
However, the GFC intervened and deflated tensions as Chinese demand collapsed. But Chinese steel mills found themselves still tied to very high prices and an annual iron ore price benchmark that did not reflect the new reality. Many defaulted on cargoes and walked away from deals.
To fight the downturn, China unleashed an enormous fiscal and monetary stimulus that soon had China building more than ever. The demand for iron ore rocketed to all new highs. With the memory of contract defaults fresh in their minds, major Australian miners, led by BHP and CEO Marius Kloppers, abandoned the annual benchmarks, forcing Chinese steel mills to adopt a short term iron ore price using spot and quarterly contracts. Brazil joined in in 2010.
The spot iron ore price soared to all new highs and triggered a global wave of new supply from producers such as Fortescue Metals Group, Ferrexpo, Kumba Iron Ore, Anglo American and Sino Iron.
With the rise of the short term iron ore price market, iron ore derivative markets grew. First in the Singapore on the SGX and later in China as the Dalian Commodities Exchange and the United States at Chicago Commodities Exchange (CME). Iron ore derivatives could hedge and future price iron ore output.
These last developments coincided with the peak in the China boom and prices began to fall from 2012. After peaking above $190 per tonne, the iron ore price collapsed into the $30s in 2015 as new supply outstripped demand.
Ahead were still many years of oversupply, a lower iron ore price, consolidation and mine closures.
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The ferrous complex continued on its merry way higher on April 4, 2022: Chinese markets were shut for the Qingming Festival but that couldn’t stop spot. I am no less uncertain about the underpinnings of this rally today. China looks to me to be entering a recession. All of Eurasia, in fact, and the US
The ferrous complex was bizarre on March 31, 2002: The unprecedented dislocation between spot and futures continues with the latter much higher than the former. I can only surmise that this is because futures are overbid by speculators while the underlying market is saturated with supply. Steel demand remains terrible. The China Steel PMI was
The ferrous complex was mixed on March 30, 2022: In the past week, Dalian futures have jumped 15% while spot has nowhere. I have never seen this kind of dislocation before. Perhaps the physical market is much looser than the heavy buying of futures would suggest. Perhaps it will converge all in one go soon.
The ferrous complex was soft on March 29, 2022: Chinese authorities have resumed their operations with Dalian hiking transaction fees again. However, for the time being, all that matters is the fog around Ukraine and OMICRON which may support prices until we get greater clarity. Against that, the Chinese PMIs will probably show more weakness.
The ferrous complex was firm on March 28, 2022: Here’s the explanation offered by the press: In Tangshan, China’s top steel producing city, iron ore producers are preparing to reduce or halt production altogether as the transport industry stalls because of a temporary Covid shutdown. The city, which represents 13 per cent of China’s overall
The ferrous complex was strong on March 25, 2022: Chinese demand is just awful but production is only terrible: There is still nothing fundamental to rationalise such high prices but we’ve got so many disruptions to both supply and demand in raw materials and finished steel that fog has settled over the market and bidding
The ferrous complex was strong on March 23, 2022: CISA mid-March output was out and rebounded: One wonders if Chinese mills are starting to benefit from curtailed Ukrainian and Russian steel exports. Combined they were nearly 50mt. I’d expect China to pick up the lion’s share of whatever is knocked out. The export PMI will
The ferrous complex was weak on March 22, 2022: Herein is the truth of the underlying demand for steel inputs from World Steel: This is below 2020 output but roughly 5mt above 2019 though still falling away. In both years, iron ore was trading around $90. In 2021, crude steel output was roughly 100mt
The ferrous complex traded in line with the broader commodity rebound on March 17, 2022: Where are seeing the impact of the Ukraine invasion play out now. Russian steel prices have cratered: While neighbouring producer prices have surged to fill the export gap: Inputs are crazy: But the relative abundance of iron ore is still
The ferrous complex was hammered on March 14, 2022: Not much to say, really. China is going into a genuine recession as the property crash, OMICRON, energy shock, and external demand weakness combine. Iron ore should be at $50 and falling but is now beholden to the global commodity hysteria. It will break in due
The ferrous complex was down on Friday February 11, 2022: Mysteel indexes are still weak: The big news is this: Guinea’s ruling junta has ordered the cessation of all activities at the massive Simandou iron ore deposit owned by Rio Tinto and a Chinese-backed consortium, saying it was seeking clarification of how Guinea’s interests will
The ferrous complex was down on March 10, 2022: The latest wild market movements are in coking coal which is trading at the ludicrous price of $635! Russia exports some 38mt of coking coal, more than 10% of the global export market so this move has some justification. Surely Chinese steel mills will charge towards
The ferrous complex was eerily calm on March 8, 2022: CISA data for late February showed a big surge in post-Olympics steel output: I have my doubts it will continue given every other indicator for demand is weak. We also got iron ore import demand for January and February which was down a little year-on-year
The ferrous complex has joined the global commodity panic with gusto now: I am not going to pretend that I have any clue where the price goes from here. Fundamentals are still terrible with Chinese housing sales collapsed: There will be fiscal support in H1 but it will not be greater than 2021 overall. Mizhuo:
The ferrous complex followed all dirt higher on March 3, 2022: The proximate cause: China’s top government officials have issued orders to prioritize energy and commodities supply security, sparked by concerns over disruptions stemming from the Ukraine-Russia war. Government agencies, including the country’s top economic planning body — the National Development & Reform Commission —
The ferrous complex blasted higher again on March 1, 2022: This has nothing to do with anything other than a global commodity blowoff of unknown duration. Russian and Ukrainian steel and iron ore output largely goes to itself or China and will keep doing so. Meanwhile, Chinese demand remains terrible. The Steel PMI makes the
Within today’s dump of balance of payments data that feeds into tomorrow’s December quarter national accounts release was the important news that Australia’s terms-of-trade fell by 5.1% in seasonally adjusted terms: Other things equal, this fall in the terms-of-trade will subtract from national disposable income: The full national accounts for Q4 will be released tomorrow
The media and research reports are full of bull about a Chinese construction recovery that is just not happening. Finally, yesterday, Bloomie broke the spell: A widely-anticipated push by China’s government to boost construction in order to stabilize growth in the world’s second-largest economy has yet to materialize, a blow to hopes that Chinese stimulus
The ferrous complex firmed on February 28, 2022: Heres’ the narrative: On the Singapore Exchange, iron ore’s most-active April contract SZZFJ2 rose as much as 3.2% to $141.05 a tonne. “Any prolonged military campaign will severely impact annual iron ore exports totaling almost 70 million tonnes from Russia and Ukraine, eventually tightening the global balance,”
The ferrous complex was volatile on Friday February 25: Prices crashed after this: China will limit the price of coal in its three biggest mining regions as it adds yet another layer of controls to stop the market from overheating. The “reasonable range” for benchmark thermal coal at the mine head in Shanxi province has