LAUNCESTON, AUSTRALIA – Iron ore’s wild price gyrations this year may be masking a small, but significant, shift in the underlying fundamentals for the steel-making ingredient.
While seaborne iron ore remains a well-supplied market, it appears the level of over-supply has been diminishing faster than many expected, leading to an improvement in the supply-demand balance.
This provides some fundamental justification for the rally in spot prices, with the China benchmark index up almost 35 percent so far this year. Let’s be clear, there is no reason to believe that iron ore is poised for a major, sustained rally. But there is reason to be hopeful that prices are more likely to pivot around the $50 a tonne mark, rather than revisit the December 2015 lows of $37 a tonne.
The main reasons for prices finding a floor are improvements on both the supply and demand side. For demand, this is largely due to China, which buys about two-thirds of seaborne iron ore and is the world’s largest steel producer.
China’s imports have jumped 9.1 percent to 493.7 million tonnes in the first half of 2016 compared to the same period last year, representing a gain of nearly 41 million tonnes.
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