Having continued their upward trend and reached their highest level since March 2017, recording a total increase of 8.88 percent last week, prices of ex-Australia iron ore with 62 percent Fe content for delivery to China’s Qingdao port have remained stable on Monday, February 4, as compared to the closing price at the end of last week, starting the current week at $84.6-85.7/mt CFR China.
Following the collapse of Vale’s iron ore tailings dam in Brazil in late January, global iron ore prices started to increase amid concerns that supply would tighten. These concerns have increased with the announcement that Vale, which has a 26 percent share in global iron ore production, will reduce its total production by ten percent. Considering that the miner in question also had a disastrous accident at another tailings dam in the same region three years ago, it will face a huge penalty. Indeed, the Brazilian judicial authorities have frozen $3 billion dollars’ worth of Vale’s assets. Another possibility is that Vale may lose its mining license, which would push iron ore prices upwards over a long period of time. Amid increased demand for high quality iron ore in China due to environmental measures, prices of iron ore with 65 percent Fe content, which exceeded $100/mt last week, are expected to continue their sharp uptrend in the coming period.
Since they completed their iron ore stock replenishments before the Chinese New Year holiday (February 2-10) and are not expected to be active in the global market until after the holiday, Chinese buyers are currently not responsible for the rising trend of iron ore prices. Although their iron ore inventories are on the high side, Chinese mills may resume their iron ore bookings if they face strong steel demand in their domestic market. In that case, global iron ore prices will likely increase further without any letup. Besides, customs transactions in China have started to take longer and employees have slowed down their work, resulting in more than 300 ships waiting at Chinese ports in order to unload cargoes, which mostly consist of iron ore and coking coal. This situation has caused the Chinese steel futures market to rise.
With Chinese market players absent due to their holidays this week, trading activity in the Chinese market is expected to be low. Meanwhile, iron ore prices will likely fluctuate depending on the news from the supply side.