iron ore prices

iron ore prices have fallen but Macquarie see a rebound:


A great snapshot of our current short term thoughts on the iron ore market. While steel market fundamentals remain divergent at best (long improving, flat weak), the recent drop in spot seaborne iron ore prices has been heavily driven by a sharp destock in mill inventory levels. Our key reference indicator on iron ore inventory levels at 50 smaller mills (the key spot market participants) indicates inventory cover has plunged from 29 days of use to just 21 days over the past month (see chart below).

We believe seaborne iron ore prices are set for a rebound back towards cost support levels around US$130/t in the near term - driven by now low inventory levels at mills (even without a restock, apparent demand has to at least normalise to real demand levels), the stabilisation of domestic iron ore prices (the lead indicator of mills starting to 'top up') and some improvement in long steel market fundamentals (construction indicators improving, infrastructure spend ramping up including rail). However, flat steel markets continue to look anaemic in the short term and will almost certainly cap the upside to any iron ore price rebound at around cost support levels.