THE IRON ORE MARKET CONTINUES TO SURPRISE

Iron ore continues its impressive rally moving into March with the North China 62% Fe content reaching a 30-month high compared to August of 2014. Whilst prices for other key commodities remain lackluster, particularly for crude following OPECs continued commitment to curb supply with little impact to the price per barrel, iron ore is trading at around $94 per metric tonne. Since the start of 2017 the iron ore price has risen 16% following its stratospheric 86% rise in 2016. The main driver is the global demand for crude steel production which has risen 7%on February 2016 numbers due in part to rising raw material prices according to the World Steel Association. 


As the price threatens to touch $100/mt it is hardly surprising why such increases are confounding the market. 2017 has seen record inventory levels at ports across Asia as Brazilian and Australian miners maintain their high output levels. Global seaborne trade currently sits at around 1.4 billion tons with China alone importing 92 million tonnes of iron ore in January. Despite these record imports China’s appetite for consuming ‘dirty’ energy remains uncertain as the PRC’s commitment to close coal power stations and embrace alternative wind and water sources, notably the Three Gorges Dam project, continues. Indian iron ore shipments are also forecast to rise by two-thirds this year following Delhi’s lifting of mining bans across the nation. With operators such as Vedanta and Essar further supplying the market, India is forecast to export 40 million metric tonnes in 2017.

The market therefore has its sceptics. Financial institutions such as BMO Capital Markets along with producers themselves such as NMDC Ltd expect the rally to end by November with prices correcting at around $45/mt. Indeed Vedanta has already claimed to have exhausted its annual mining cap for Goa in January. Analysts are quick to highlight that after the Asia Lunar New Year production and consumption soars before the market readjusts once again. This week the spot price benchmark already suffered the heaviest fall recorded for one day since January 6th dropping by 3.14% to $91.34/mt. Chinese invetories are at the highest level since 2004 at 127.5 million tonnes and such a surplus is likely to weigh on the iron ore price as demand fluctuates.

Alongside the iron ore rally seaborne trade has enjoyed a minor renaissance. BHP Billiton and Rio Tinto have been busy booking Capesize vessels for trips from West Australia to Bohai Bay with rates hitting $6.00. The FFA market continues to reflect strong period fixing. Cape 1 year TC rates can achieve $12,000 for Pacific delivery. Supramax bulk carries have achieved as much as $12,000 (or even higher) for single trips on the familiar coal runs from Indonesia/Australia to China. Supra short period rates can achieve around $9,000 with Pacific delivery. Operators appear bullish on trading the spot market with chartered-in tonnage with hope the market can rise to around $15,000 for single trips, although this remains an optimistic sentiment.

So where is the iron ore market heading? As usual for the commodity market and shipping, fortunes over the last decade or more have relied, perhaps too heavily, on China’s economic performance. As Beijing continues its supposed commitment to ‘Green Alternatives’ and general unpredictability in policy formulation, much will hinge on the Asian giants direction of travel. As a Trumpist-Protectionist sentiment seems to be sweeping through the Western economies global geo-politics will also cause uncertainty. Dry bulk ship owners are at least enjoying a period of improved TC and Voyage rates across the market, for now.

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