That article was dated 3 May 2017 - old news, Now for some current news:
Material Matters: Iron Ore, Steel & Aluminium
Commodities |
Jun 09 2017
A glance through the latest expert views and predictions about commodities. Iron Ore
-Large iron ore oversupply looms but will prices head to US$40/t?
By Eva Brocklehurst
Iron Ore
Rising supply and falling demand: the perfect ingredients for a correction in
iron ore prices. Yet Commonwealth Bank analysts observe that what makes the recent fall in prices unusual is that Chinese
steel rebar spot prices have rallied. They note that these diverging trends have helped Chinese steel mill margins increase sharply.
The analysts expect steel margins will not remain elevated because the industry in China is so competitive. Consequently, they believe steel prices will fall steeply and margins normalise. Following this, demand for inputs such as iron ore will decline and a large oversupply of iron ore will make itself known.
The surplus is likely to be exacerbated as China's focus moves away from commodity-intensive sectors. The analysts expect iron ore prices to decline to around US$45/t by the June quarter of 2018.
Credit Suisse observes
low-grade iron ore prices have also suffered over recent weeks. Usually, high steel margins lift the 62% iron price but also increase lower grade ore discounts but the relationship broke down over the last couple of months. Some steel mills have been on-selling contractual cargoes of iron ore to repay quarterly loans and abundant spot cargoes have weakened the seaborne price.
When steel margins are wide, mills seek higher grade ore to maximise
pig iron production yet, while this has occurred, coincidentally, the penalty for higher alumina content in low-grade ore has blown out. This was probably because of high coking coal prices affecting the steel production mix, the broker asserts. Overall, the broker expects the end of the construction season in China should soften rebar demand, prices and margins, allowing low-grade discounts to reduce.
The reason that iron ore prices have been under pressure despite strong demand and steel margins, Macquarie ascertains, is that supply has simply overwhelmed demand. Along with higher imports China's domestic iron ore production is also picking up.
Steel mills remain very profitable, which means they have no need to de-stock iron ore and push prices lower in order to improve cash flow. The broker observes steel mill inventory for iron ore is now quite supportive of iron ore prices.
Macquarie does not expect iron ore prices will head as low as US$40/t, as was experienced in late 2015, because demand is on a firmer footing. Seaborne supply is also likely to start coming under pressure, especially as low-grade discounts mean 58% iron spot prices are already approaching US$40/t and Indian iron ore exports will slow ahead of the monsoon season in May-September.
