Iron prices have been trading at record levels over the past while, breaking $120 per tonne and reaching a five year high in the process. However, experts have warned that this wasn’t going to last for long as these prices are largely unsustainable for the industrial metal.
While some investors might have been skeptical about a reversal in the iron markets, the past few days has seen a dramatic correction unfold already. Between the beginning of August and now, prices for iron ore futures have fallen to around $100 per tonne, representing a 17 percent decrease.
Monday saw iron ore prices continue to fall, closing around the $100 price range by the end of the day. The main reason for this fall has been a pick-up in supply from the world’s largest iron miner, Vale (NYSE: VALE).
Throughout the first half of 2019, the company ended up drastically cutting down its Brazilian iron mining operations following the Brumardinho dam eruption which ended up killing hundreds of people.
Following months of shutdowns, investigations, and efforts to reinforce existing facilities up to acceptable safety standards, many of these mines have been starting back up. With Vale’s supply cuts being the biggest reason why iron prices rose in the first place, this return to normal output will likely further suppress iron down to where it was before in late 2018.
At the same time, President Trump’s recent proposal to add an additional 10 percent tariff on $300 billion worth of Chinese imports likely has hit the price of iron ore as well. This would make Chinese steel mills, which are among the largest consumers of iron in the world, to lowering their demand. However, the futures market in particular was the worst hit, falling by as much as 8.6 percent to $94.32 per tonne.
Already mainstream financial outlets are saying that the iron market is now in a bear run, whereas just a week ago things were just fine. This shift represents one of the most dramatic turnarounds in the commodity’s markets so far this year.
“Miners’ shares retreated, with markets focused on the consequences of China allowing the yuan to weaken to the lowest in more than a decade,” said Bloomberg analysts according to one outlet. Other analysts, such as Hui Heng Tan from Marex Spectron Group, went on to say that “we are outright bearish on demand,” a sentiment shared with most experts in the market at this point.
While many industry experts expected the markets to shift came to a lower price, what is true is that no one was expecting such a drastic change in price so quickly.
Vale Company Profile
Vale is the world’s largest iron ore miner and one of the largest diversified miners, along with BHP and Rio Tinto. Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal. The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper. – Warrior Trading News