The price of iron ore continues to fall

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Credit: BHP.

The price of iron ore continued to fall, with the price of steel raw material falling from a record high of $ 233 per tonne in May to $ 94 on Monday.

The drop in prices comes as China struggles to clean up its heavily polluting industrial sector, in which coal-fired steel plants contribute a significant portion of the country’s total high emissions. Beijing has imposed rapid cuts in steel production in an attempt to slow its construction-intensive economy. If this policy persists, demand for iron ore could be 100 million tonnes lower in the second half of the year compared to the first, and prices could drop to as low as $ 70.

It shows how China, as the world’s largest consumer, can influence the market at a time when demand for raw materials is booming and as economies begin to reopen after the worst of the Covid-19 pandemic.

The collapse of iron ore makes it one of the worst performing major commodities and a notable outlier in a larger boom that has seen aluminum hit a 13-year high, gas prices surge and gas prices. coal futures reach unprecedented levels.

UBS Group AG said the decline “has proceeded faster than expected”. Inventories in ports are 10% higher than a year earlier and expectations of a slowdown in Chinese demand coincide with forecasts of increased global supply. UBS predicts prices will average $ 89 next year, down 12% from its previous forecast.

Industry Commentator Tim treadgold said the price of iron ore was expected to stay low for a while, as was its cyclical nature, and he believed they would fall further before they rebounded.

He went on to say “You can say [the price] is in free fall and will keep going down until it finds support and it won’t be for a while, and it can go down to $ 70 or less ”,

“Parties and merchandise don’t just happen, they end naturally and everyone walks out the door at the same time. You get stuck in the doorway and the price corrects excessively.

The result of the fall in prices hit the major iron ore producers hard. Producers Rio Tinto, BHP, Vale SA and Fortescue Metals Group Ltd saw their shares drop considerably (see figure 1).

image courtesy of Bloomberg


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