China iron ore prices climb 10% to record high due to supply issues

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A freight train carrying iron ore travels a railroad track bound for Port Hedland, Australia on Monday March 18, 2019.
Ian Waldie | Bloomberg via Getty Images
Iron ore futures on China’s Dalian Commodity Exchange jumped nearly 10% on Friday to an all-time high, breaking the 1,000 yuan ($ 152.95) per tonne mark for the first time ever. the story.
The confluence of declining iron ore supply, growing demand for steel, and potential short-term disruptions from the storms hitting Western Australia have led commodities analysts to worry. .

Lower supply estimates from Vale, the world’s second-largest producer of iron ore, have heightened these fears, as the Brazilian company recently slammed its production forecast for 2020 and lowered its forecast for next year. Meanwhile, November shipments from Brazil to the rest of the world fell to their lowest level in six months.

Erik Hedborg, senior analyst at commodities firm CRU, told CNBC on Friday that China’s strong economic performance and the revival of infrastructure had led to increased demand, lower already low inventories and lowered stocks. tightening market conditions. In tandem, supply by sea to Australian and Brazilian iron ore plants has also declined.

Australia accounted for 58% of the world’s total supply of iron ore transported by sea in 2019, according to the World Steel Association, much of which is exported to China. Brazil represented 23%.

“There is now a tropical storm approaching the coast where all the iron ore is shipped from, and two of Australia’s largest ports have now been closed, and together they make up just over half. of the world’s supply of iron ore, ”Hedborg added.

A low-pressure weather system has already arrived on Australia’s west coast and another is on its way, with residents being urged to prepare for high winds and high tides.

Hedborg suggested strong demand from China is likely to continue, with still low inventories largely worrying Chinese steelmakers, while the ebb in overseas supply will also last for some time.

Iron ore is a raw material used to make steel, which in turn is used in the creation of high-rise buildings and mass transit systems.

“We’re going to see lower production from Brazil than people had anticipated, so it’s going to continue until 2021, and we’re seeing problems restarting mines in Brazil, for example, and Vale will continue to operate at reduced levels. over the coming year. , ” he said.

While Australia’s turbulent climate may be shorter term, Hedborg pointed out that the first quarter is generally more prone to weather disruptions from events such as tropical cyclones.

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

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

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