Iron ore price between robust demand and rising supply

by David Fleschen

The price of iron ore appears to have completed its interim correction and is trading at around USD 115 per tonne on SGX in Singapore. It is likely to be supported by the record high steel production in China. The National Statistics Office reported earlier this week that steel production in September rose by 10.9% year-on-year to 3.09 million tonnes per day - an all-time high. This was the fourth consecutive month in which China produced more than 3 million tons of steel per day. Projected for the year as a whole, steel production is on course for a record high.

The World Steel Association publishes its data on global steel production today. In line with the high production, Chinese steel producers are requesting a lot of iron ore, which has been reflected in exceptionally high iron ore imports in recent months. However, this has also led to an increase in inventories, which currently stand at around 128 million tons. Moreover, the robust demand is offset by a noticeable increase in the supply of iron ore, which market participants seem to be ignoring in their approach. In recent days, two of the three largest iron ore producers have reported significantly higher iron ore production and sales for the third quarter. All three have reported that they are well on track to meet their targets for the full year. In the case of the producer from Brazil, this means a further significant increase in production in the current quarter. Accordingly, the seaward iron ore market should be better supplied, especially as the seasonally weaker demand period is now approaching in China. Therefore, like the market - the iron ore forward curve is in backwardation - experts expect iron ore prices to decline in the coming months.

Source: Commerzbank Research, Photo: Fotolia

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