The iron ore market has recovered from the Global Financial Crisis, supported by resurgent global steel production, which has risen 14% in the past three months. It is clear that fiscal stimulus of the steel sector has
succeeded. Recovery in iron ore demand, which began late 2Q09, is ongoing and should continue to support a long-term recovery in prices.
There have been several drivers of this recovery, which began in 2Q09.
The main one is demand from China, which has returned to long-term trends for iron ore imports, production and inventory levels, from which it barely deviated during the crisis. Other drivers of consumption have included production cuts across the entire minerals sector, and growing optimism among consumers.
Chinese iron ore market statistics reflect the recovery. The import spot price has risen 25% in the past three months to US$104.2/t. The internal spot price (CNY860 or ~US$125.5/t) has risen 10.1% in the same period,
to levels similar to those seen in 2007, before the 2008 price surge. It is still 46.6% below its March 2008 high of CNY1610 (~US$234.8/t). Imports for the past three months are up 34.4%, year-on-year but have fallen 16%
in the past month, while inventory levels and output have remained flat, consistent with a seasonal slowdown. Chinas iron ore output for 2009 is forecast to be ~840mt, a 19% increase over 2007. Global steel prices are
improving steel plate has risen 7.9% over the past three months. Refined steel production has increased 14% over the same period.
The speed of the recovery has created some short to mid-term downside risks for iron ore, especially the spot market. These include oversupply in the steel sector, as the result of cheap credit (especially in China); a
decrease of stimulus-driven stockpiling and easing of global production cuts, which have supported prices; and investment in new mines to meet the perceived increase in demand, which could lead to oversupply of iron ore. However, global steel production has returned almost to pre-GFC levels and the long-term outlook for iron ore is strong.
Iron ore contract prices are below 2008 levels e.g. Rio, US$0.97/dmtu fines (US$62/t at 64% Fe), a 33% reduction; and US$1.12/dmtu lump, a 44% reduction but 20% higher than in 2007. No China contract price was set for 2009 and it is possible the benchmark system will be partly abandoned in 2010 in favour of index-based pricing. We maintain our forecast that contract iron ore prices, if established, could increase in 2010-2012 to USc100-130/dmtu for fines (US$62-US$80/t for 62% Fe), a wide range of 3% to 34%, averaging 18.5%. RCRs long-term forecast remains US$40/t at 62% Fe for fines and US$48/t for lump.
Source: latest RCR IO report
PS
what do you expect from a 71 year old Chairmen with a weak ticker who wants desperately go to Tasmania for retirement?
Add to My Watchlist
What is My Watchlist?