By Sohrab Darabshaw
2022 has been a roller coaster ride for iron ore prices, which dipped yet again on Monday. Of course, demand from Chinese steel remains the top reason for either a rise or downturn in prices. This week, as it turns out, was no different. In fact, prices tumbled immediately after analysts explained their “bleak outlook” for demand, citing that Chinese steel mills are reeling from losses and cutting production.
The news was so impactful that predictions of iron ore dropping below the $100 mark almost came true. Indeed, the benchmark 62% Fe fines imported into Northern China fell 4.41% to just US $109.89 per ton. To make matters worse, the September iron ore contract on China’s Dalian Commodity Exchange ended daytime trade 5.8% lower, finishing at around US $107 a ton.
Inventories in China are on the rise mainly due to reduced uptake. Of course, weak local demand and COVID-19 restrictions continue to plague the entire sector. Lastly, growing fears of a global recession are damping ore prices across the board.
Back in mid-June, iron ore prices enjoyed a nice rebound. This was after Chinese President Xi Jinping vowed to initiate effective measures to achieve the country’s economic and social development goals.
At the time, his call for greater coordination on economic policy to avoid disrupting the recovery of the Chinese economy was seen as a strong signal to lift market sentiments. Still, iron ore prices have been fickle, and they plummeted just a few days after the speech.
All things considered, iron ore has been up in 2022, averaging around $121 per ton. Still, current levels are a far cry from that, and even further from the $157 per ton price we witnessed in March. Unfortunately, by June, prices tumbled to their lowest levels since the first week of December, 2021.
Those negative prices affected steel markets too. For instance, the price of reinforcement bars used in the construction industry have declined 20% since early May. Now it seems that ore prices may experience a further downturn. According to a group of analysts, Chinese blast furnaces may continue to work at less than normal capacity because of better production discipline, adding to the stockpile.
Another factor hurting prices was the hiking of interest rates by the US Federal Reserve and other central banks. Though designed to curb inflation, the increase will surely affect demand from the global automotive and construction industries.
And to think that merely a year ago, iron ore prices had hit a record high above US $230 a ton. Back then, they were riding a wave of strong, bullish post-pandemic demand. It’s amazing how quickly the markets can flip.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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