Movement of metals in volatile times: Part Two – Iron Ore
Though not a metal, but a mineral, iron ore is a crucial ingredient in industrial steel production. Having skyrocketed in the first-half of 2019, iron ore prices have fallen back to earth in recent months.
The three big factors driving the iron ore price:
1. Global supply disruptions
The primary driver of Iron Ore this year has been disruptions to global production, which has reduced the supply of the mineral into global commodity markets, and sent its price to as high as $US114 per tonne. The biggest of these came in late-January 2019, when a collapse of a major mine operated by mining giant Vale in Brazil prompted the temporary closure of several Vale mines in that country. The next big disruption came courtesy of several major storms that ripped through Australia’s key Pilbara area in March and April, which slowed mining activity in that region.
2. Changes in Chinese steel production
Although supply side issues have been the main driver of Iron Ore in 2019, there has been a demand-side factor supporting the rally, too. Chinese industrial demand for the mineral had ramped up through the back-end-of 2018, and the start-of 2019, as China’s policy makers increased steel production to stimulate the Chinese economy through the headwinds caused by the US-Chin trade-war. This dynamic has waned, however, in recent months, as reports flow through commodity markets that steel production in China has slowed down, and that iron ore stockpiles at Chinese ports have increased.
3. The global growth outlook
More broadly, and from a historical perspective, iron ore prices have been determined by the strength of the global economy. In times when economic growth is improving, demand for iron ore increases as countries seeks to boost their industrial output. As commodity markets enter the second half of 2019, the global economic outlook is apparently worsening, largely due to a trade-war induced slowdown in the Chinese economy. That factor is driving iron ore prices down from the its July highs, with the trend expected to continue for as long as economic activity is diminishing.
What might be in store for the price of iron ore?
Both the supply and demand stories in the market are indicating a period of weakness in iron ore prices in the near future. Crucially, Vale has recently announced that it would be slowly restarting its closed mines, and gradually normalising production. The impacts of storms in the Pilbara region have also subsided. The weaker global economic outlook seems to have become the driving factor in price – especially judging by the recent slow down in Chinese steel production, and the increase in Chinese iron ore stockpiles. Momentum has demonstrably turned to the downside looking at market technicals, indicating an iron ore price that could fall further from here.
_20190820_16.53.png)
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Speculate on commodities
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
