…the days of rock-bottom prices are probably over, say analysts.
UBS commodities analyst Daniel Morgan said there were several reasons why iron ore had performed so strongly since the start of the year.
“I don’t think that it will continue to lift like it has in recent weeks,” said Mr Morgan. “But I think that people who predict that iron ore will go to $US30 and stay there are being too bearish.
From Domainfax:
“If you look at shipments coming out of Australia, they’ve been a little bit soft,” said Mr Morgan. “They tend to do that at this time of year.”
The Samarco mine in Brazil, jointly run by BHP and Vale, has been shut down since the November 5 accident. The dam burst, considered Brazil’s biggest environmental disaster, killed 17 people and flooded hundreds of kilometres of river valleys in two states with mine waste.
There has been seasonal restocking by China’s steel mills following the recent Lunar New Year holiday, which has helped to fuel demand for iron ore.
As expectations of four interest rate rises from the US Federal Reserve in 2016 fade, upward pressure on the US dollar – in which iron ore is priced – has eased somewhat.
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Largely balderdash as usual:
- Australian shipment weakness has now passed, indeed miners will be shipping above capacity to make up ground;
- Samarco was a marginal impact, it didn’t supply to China;
- the US dollar has much lower impacts in iron ore than other commodities given it is less finanicalised;
The restocking is the only thing going on here, enhanced by recent Chinese stimulus. It will pass in due course leaving enormous oversupply and far too large Chinese inventories.
We may get a schedule for Samarco this week, via Bloomberg:
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Signing of a final agreement after weeks of negotiations is the first step for Samarco to be able to restart mining operations in the region, Adams said previously. Vale and BHP must serve as guarantors of the eventual agreement, he said last month.
Not only is iron ore going below $30, it’s going below $20 soon enough. This year we’ll see more supply from Minas Rio, Sino, Roy Hill, India and Vale as Chinese demand falls sharply with a swing in the market of 100mt towards greater surplus.
Further rationalisation will come from closures in Australian juniors, Chinese output and other marginal players but not enough and the next price point needed to continue to balance the market will be Fortescue breakevens in the mid-$20s.
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