STEEL NEWS

Iron ore in China soars 10% to a historic record

As reported by Bloomberg, iron ore futures on the Dalian Mercantile Exchange on Friday surged nearly 10% to an all-time high, surpassing 1,000 yuan ($ 152.95) per ton for the first time in history.

The combination of a dwindling supply of iron ore, rising demand for steel and potential short-term disruptions caused by storms that hit Western Australia has led commodity analysts to express concern.

Lower offer valuations from Vale, the world's second-largest iron ore producer, have heightened those concerns as the Brazilian company recently cut its 2020 production forecast and cut its forecast for next year. Meanwhile, November shipments from Brazil to the rest of the world fell to a six-month low.

Eric Hedborg, a senior analyst at commodity company CRU, told CNBC on Friday that China's strong economic performance and boost to infrastructure development have spiked demand, shrinking already low inventories and tightening market conditions. At the same time, maritime supplies of iron ore power plants in Australia and Brazil decreased.

Australia accounted for 58% of the world's total maritime iron ore shipments in 2019, most of which is exported to China, according to the World Steel Association. Brazil accounted for 23%.

“A tropical storm is now approaching the coast where all the iron ore departs, and the two largest ports in Australia are already closed, and together account for just over half of the world's iron ore supply,” Hedborg added.

While the turbulent Australian weather may be more short term, Hedborg highlighted that the first quarter is typically more prone to weather disruption from events such as tropical cyclones.

“This right now is a sign that we could see a pretty problematic cyclone season in Australia,” he added.

A group of Chinese steel producers on Fridaycalled on the country’s market regulator and securities regulator to investigate the recent spike in iron ore prices, according to Reuters, claiming they had “deviated from the supply and demand fundamentals.”