If we think copper, zinc, and even aluminum have performed well this year, none of them are a patch on iron ore.
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Iron ore prices rise
China’s iron ore imports fell for the second straight month in November. Imports dropped by 8.1% from a month earlier, Reuters reported.
However, prices still rose strongly.
China brought in 98.15 million metric tons last month, compared with 106.74 million tons of imports in October. Nonetheless, the November total rose 8.3% from November 2019.
The report went on to say that for the first 11 months of the year, iron ore imports stood at 1.07 billion tons. Meanwhile, full-year imports totaled 1.06 billion tons in 2019.
Imports seem to be constrained due to availability rather than lack of demand. Quite the contrary, prices are continuing to rise.
Spot iron ore hit the highest level since December 2013 last week. The Dalian Commodity Exchange price climbed a further 2.8% to Yuan 928 per metric ton (over $141 per ton). That is a rally of 50% since this time last year. The price is also up 72% since the end Q1 China lockdown crash pushed prices below $80 per ton.
Infrastructure stimulus investment and a strong construction market have supported steel prices. As a result, steel mills have been producing flat out and drawing down port stocks of raw materials like iron ore.
According to another Reuters report, imported iron ore stocked at 45 Chinese ports dipped for the fourth week over Nov. 27 to Dec. 3. Imports fell by 1.6 million tons from a week earlier to about 124.5 million tonnes, mainly due to lower arrivals.
Vale struggles to meet previous targets
Normally, iron ore producers would be happily shipping ore to feed the beast.
Although it’s not alone, Vale in particular has experienced problems meeting targets.
The miner said last week it would produce 300 million to 305 million tonnes of iron ore this year. The guidance marked a decline from a prior forecast of at least 310 million. Vale also said it expected 2021 output to fall in a range between 315 million to 335 million tonnes, below what analysts had been expecting.
If correct, Vale is likely to lose its position as the world’s biggest producer of iron ore this year to rival Rio Tinto. The latter pegged its expected 2020 shipments at 324 million to 334 million tonnes in an update published in October, Reuters reported.
Vale’s production suffered in the second quarter when the company faced the full impact of the pandemic, wet weather and maintenance at its huge mine in the Amazon rainforest. Since then, production has bounced back. However, the company is still struggling to return to full output.
Vale is not alone, though. Virus-related lockdowns have also impacted South Africa. Furthermore, Indian steel mills are calling for government intervention to block iron ore exports as domestic demand rises.
In such a climate, even the loss of a few million tons of output can be supportive of prices.
China’s winter steel climate
Steel production in China is usually reduced during the winter due to government-mandated curbs to pollution levels by steel mills, which have been busy upgrading existing plant with better control equipment.
New capacity has come onstream with state-of-the-art pollution control technology, so cutbacks are thought to be unlikely to be anything like previous years.
However, strong output and the gradual waning of stimulus measures next year will probably see the excess steel stocks develop and, with it, an easing of demand.
Whether the iron ore market will flip back into surplus from its current deficit remains to be seen.
Output is also rising in other Southeast Asian countries. In addition, Japan is bringing blast furnaces back onstream as it sees domestic demand recover, initially adding to iron ore demand but eventually leading to more metal availability in the region and, hence, capping prices.
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