Ukraine adds to puzzle over iron ore outlook

Ripple effects from the war in Ukraine are hitting iron ore markets as bears tussle over whether prices can hold at high levels.

Updated Feb 28, 2022 – 3.58pm,first published at 3.17pm

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Investors trying to interpret a smorgasbord of issues to figure out how long iron ore prices can hold above $US130 a tonne have been thrown another curveball by the conflict in Ukraine.

Ukraine’s iron ore sector accounts for 40 million tonnes a year, with Russia a further 25 million tonnes. While this is trifling in comparison to the size of the Australian industry – BHP’s production is aiming to produce about 250 million tonnes this financial year alone – some early flow-on effects are emerging.

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Iron ore prices are likely to remain volatile. Jacky Ghossein

Japan’s Nippon Steel said at the weekend that it is considering how it might need to adjust its supply lines, given 14 per cent of the high-grade iron ore pellets that Japan imports come from Ukraine.

Pellets are a small but high-quality part of the global iron ore trade, and Ukraine’s importance to this segment has risen in recent years after production from Brazil was hit by concerns about the safety of tailings dams in the country.

A Nippon spokesman said alternative sources for the raw materials in Brazil and Australia would be considered, and pellet prices – which always trade at a premium to iron ore prices – could push a little higher still.