Iron ore is experiencing a rally that has been largely driven by two factors that are yet to occur: a renewed Chinese building boom and supply disruptions in Australia, which are both still unknown.
The iron ore price rose on Friday due to a combination of fears and hopes that China’s increased monetary easing would spur demand.
Fastmarkets MB reports that benchmark 62% Fe fines were being traded for $147.42 per tonne in morning trading. This is 5.7% more than Thursday’s closing.
The front-month March iron ore traded on the Singapore Exchange rose as high as 7%, reaching a record contract high of $147.25 per tonne.
Spot prices rebounded strongly as well, with the benchmark 62% grade material rising to $140 per tonne on Thursday. This is the highest since Sept. 3, according to SteelHome consultancy data.
The rally’s catalysts are actually fear and hope. Together they are giving steel-making raw material a bullish tack.
Australia’s supply could be at risk from the Omicron coronavirus variant breaking through the walls of fortress Western Australia state. This is a country that has so far been one of few in the world to maintain COVID-19 under strict border control.
The bulk of Australia’s iron mines is located in Western Australia. They supply around 70% of China’s imports.
On Wednesday, 24 cases of COVID-19 were reported in the state. This is a small number when compared to the New South Wales state’s 17,316 new cases and 29 deaths that occurred the same day. However, it raises concerns about the possibility that Western Australia may be at the beginning of an Omicron wave.
Premier Mark McGowan of Western Australia stated that there is an outbreak.
McGowan, despite his pessimism in general, is keeping his state’s borders closed to limit Omicron’s spread. However, this could also lead to a decrease in iron ore production.
Many workers in remote mines live in other states. The big miners worry that they will lose their jobs if Western Australia’s border controls don’t allow them to freely travel between the mines in Western Australia and their homes in Australia’s eastern states.
Rio Tinto, BHP Group and Fortescue Metals Group, Australia’s largest iron ore miners have all reported possible labour disruptions.
The coming cyclone season is another concern for Australia’s iron-ore production. This may be due to the La Nina weather phenomenon which in the past has led to stronger and more frequent storms.
The actual export volumes are holding steady, so there is no need to worry about potential disruptions.
Refinitiv estimates Australia’s iron ore exports at 74.13 million tonnes in January. This is down from December’s 80.26million, but higher than November’s 68.25million and October’s 71.7 million.
Refinitiv has forecasted that China will import 117.41 Million tonnes in January. This would surpass the official 112.65 million from July 2020 and is consistent with China’s solid exports.
Kpler, commodity consultants, expect record imports of iron ore from China in January. Their data points to arrivals of 117.42 million tonnes. Official data may show some variation as not all cargoes discharged in January could be considered to have cleared customs in that month.
China’s strong iron ore imports are the hope of the current rally. There is high construction activity expected in the coming months.
China’s steel production may be limited until March due to the need to reduce pollution from the Beijing Winter Olympics and the forthcoming Lunar New Year holiday.
However, steel demand is expected to increase once the period has ended. This will be due to construction ramping up to the summer peak, and Beijing working to stimulate the economy to achieve its growth targets.
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