An article in the Australian Financial Review (AFR) underlines the bullish narrative accompanying the iron ore price’s performance this year.
“Chinese steel consumption has just blown consensus out of the water this year,” the report notes, citing analyst comments, adding, “The macro backdrop, in terms of China, is very strong for all commodity consumption, and steel and iron ore is doing particularly well.”
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Rising money supply
The post points to rising money supply, which moved up 10.4% year over year in August, as a market-leading indicator of further strength in demand this year and iron ore producers’ relative underperformance relative to projections.
That is particularly true for Vale, which would need to achieve a run rate of close to 400 million tons per annum for the second half of the year to achieve its earlier production guidance of between 310 million and 330 million tons as a whole after a poor, COVID-impacted first half.
Iron ore price recovery
The recovery in iron ore prices has been impressive.
Dalian iron ore has risen more than 60% this year. The Singapore SGX benchmark has gained about 50%, underpinned by China’s strong demand, Reuters reported. China continues to ramp up steel output after rolling out infrastructure-led economic stimulus measures.
Relatively robust steel prices and a lack of significant inventory build despite record-high run rates supports a story of strong demand recovery. Meanwhile, the rising iron ore price provides support for steel prices. Margins remain constrained, meaning mills have little scope of overproduction if prices were to slide in an oversupplied market.
Iron ore takes a step back
Yet, prices have eased in recent days.