Seaborne iron ore prices plunged 6.3% today, falling to a level last seen in late January just after Vale’s tailing dam accident. At $82.4 per tonne, the benchmark price is 30% lower than at the beginning of the month.
Today’s sharp drop is likely to be an overreaction to the news of further steel production restrictions in China. Local authorities in Wu’an have ordered four local steelmakers to suspend blast furnace production from August 22 until the end of the month, except for a single furnace at each site. The latest curbs come on top of existing restrictions for the area and will involve an additional nine blast furnaces going offline temporarily.
Today's announcement of new restrictions is likely to have caused some overselling. However, rising seaborne supplies and softening demand are the mains drivers of the recent downward shift in iron ore prices.
Average weekly iron ore shipments out of Brazil have recovered 68%* since April on the back of a partial restart of Vale’s halted mines, the ramp-up of S11D and the resumption of operations at Minas Rio.
Currently, volumes are at around last year’s levels.
By contrast demand, particularly in China, is showing signs of weakness, and is likely to soften further in the coming months on the back of slowing economic and industrial activity.
On a more positive note, however, the sharp drop in raw material costs, particularly in iron ore prices is lifting steel producers’ margins in China. Although still quite weak at RMB367 per tonne, margins have improved 7.9% since the beginning of August.
Source:Arrow
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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