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China iron ore price plunges nearly 10% after a record-setting rally

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Benchmark iron ore price plunged as much as 9.5% in China as market participants paused after a super rally that sent prices to historical highs over the past few days.

The most actively traded iron ore on the Dalian Commodity Exchange, for September delivery, closed down 7.5% at 1,217 yuan ($188.66) per tonne, after touching 1,190 yuan earlier in the session.

The iron ore price surged to a record $237.57 per tonne in New York on Wednesday as strong Chinese demand continued to outpace supply, but analysts are not entirely convinced the price run has legs.

“High iron ore prices in early 2021 are unsustainable, but market fundamentals remain strong”

Moody’s senior VP Barbara Mattos

“We do not see extreme tightness in the iron ore market, now or in the future. We see little support for the price rising this high above the cost of the marginal producer in the market,” Erik Hedborg, an analyst with CRU, said in a note.

Other steelmaking ingredients also pulled back. Dalian coking coal and coke both declined 3.9% to 1,988 yuan and 2,729 yuan per tonne, respectively.

China’s state council said on Wednesday it would step up coordination between monetary policy and other policies to maintain stable economic operations and cope with a fast increase in commodity prices, without outlining detailed measures.

The record price levels are supported by a continued supply squeeze, with major iron ore producers reporting seasonally lower output in the March quarter, and growing concern over the escalating covid-19 crisis in India, which could impact the country’s exports of the metal.

“These factors, along with a recovery in ex-China demand, [are] expected to drive the global seaborne trade balance into a deeper deficit in 2021, with annual prices forecast to average $153 per tonne,” Ronnie Cecil, principal analyst for metals and mining research at S&P Global Market Intelligence, told The Northern Miner, although he notes a seasonal rise in Brazilian exports are likely to lower prices in the second half of the year.

Moody’s Investors Service says the lofty iron ore prices will likely recede but remain strong amid persistent supply constraints.

“High iron ore prices in early 2021 are unsustainable, but market fundamentals remain strong for 2021 based on supply constraints and a lack of major expansion projects in store for the coming years,” Moody’s senior VP Barbara Mattos said in an interview.

“Rising steel demand will sustain iron ore prices at or above the higher end of our $70-$100 per tonne price sensitivity.”

($1 = 6.4507 Chinese yuan renminbi)

(With files from Reuters)

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