Global iron ore prices surge 20% on Monday, what next?

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New Delhi | Updated: March 08, 2016 1:59 PM

Iron Ore prices soared nearly 20 per cent to above $60 per tonne in the international markets on Monday .

iron oreIron Ore prices soared nearly 20 per cent to above $60 per tonne in the international markets on Monday. (Reuters)

Iron ore prices soared nearly 20 per cent to above $60 per tonne in the international markets on Monday. According to market experts, expectations of a short-term boost in China’s steel production, as producers looked to brisk seasonal demand, underpinned price gains in iron ore.

China’s iron ore imports rose 8.3 percent to 73.61 million tonnes in February from a year ago, customs data showed on Tuesday, as top miners boosted shipments to gain more market share in the world’s top consumer.

Imports jumped 6.4 percent to 155.8 million tonnes over the first two months from a year ago, data from the General Administration of Customs showed. Overall, Iron ore has surged 46 per cent so far this year on hopes that Chinese steel demand will pick up.

Iron ore prices spiked 19 per cent on Monday after the Chinese finance minister Lou Jiwei said that growth in China’s fiscal income will slow in future, but the country still has room to increase government debt.

On an average, iron ore prices tanked over 60 per cent to $55 per metric tonne by the end of the calendar year 2015 from $146 per metric tonne in 2010. According to Rahul Dholam, senior research analyst, Angel Broking, Iron ore have crashed in line with other commodities led by the slowdown in china and global growth concerns. Besides, the four largest exporters of iron ore (Rio Tinto, Vale, BHP Billiton and Fortescue), who account for nearly 80 per cent of the seaborne trade, continue to add capacities to avoid losing market share resulting in a supply glut. Most of the India iron ore used to go to China

In India, production of iron ore during 2014-2015 was 56.5 million tonnes down from 152.06 million tonnes in 2013-2014. During the year 2013-2014, reported consumption was 110.50 million tones. The absence of an oversight body, illegal mining became rampant and environmental considerations were disregarded. This, in turn, led the Supreme Court to intervene. The court banned iron ore mining in Karnataka in July 2011 and in Goa in October 2012.

In 2014-15, India imported 15 million tonnes of iron ore, an all-time high and for the second consecutive year the country’s imports will far exceed exports. An export out of the country is pegged at a meagre 4.5 million tonnes. “Our domestic iron ore production will increase only if government speeds up mining clearance,” said Aasif Hirani, director, Tradebulls

India, despite being rich in Iron ore continues to import because of in-availability of domestic iron ore and low international prices of high grade iron ore.

Market experts are not looking very bullish on the further movement of iron ore prices. “With cost of iron ore is already near cost of production, we do not expect a significant downside from current levels. However, with global steel demand slowing down, we do not expect any significant upside in iron ore prices,” said Dholam.

Goldman Sachs said on Tuesday that the structural factors that have driven a bear market in metals remain in place as there is little prospect of improvement in Chinese demand.

Goldman Sachs in a research report in December had predicted iron prices to decline to $35 a tonne in 2017 and 2018, down 14 per cent from its previous prediction of $40.

The US is the world’s largest producer of iron ore, followed by Australia, Brazil and Canada. China is the world’s largest consumer.

(With inputs from Reuters)

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