Bullish trend in Iron Ore Business and MSK’s global role

In 2021, MSK has bagged many iron ore commodities related jobs across the globe. From lumps to Met Coke to Sinter feed fines, MSK has been attending to shipments for various clients in Japan, Australia, China, Malaysia, Brazil, Egypt and Venezuela. Considering the bullish trend in the Iron ore business, MSK has revved up its capabilities to service new projects worldwide.

Taking cue from China’s steel production hitting a record high, Iron ore prices are soaring since the last week of June. Iron ore 63.5 per cent Fe has gained 31.55 per cent since the beginning of this year, while iron ore 62 per cent Fe has increased 38 per cent. China is the largest consumer of iron ore, importing nearly 70 per cent of the global shipments. Last year, it imported a record 1.17 billion tonnes.

Last month, the World Steel Organisation data showed that China produced 94 mt of steel in March, up 19.1 per cent year-on-year. On the other hand, India’s production was higher by nearly 24 per cent at 10 mt.

The World Steel Association (WSA), in its short-range outlook for 2021 and 2022 last month, forecast steel demand to grow by 5.8 per cent this year to 1,874 mt after last year’s marginal decline. Next year, it sees steel demand growth to rise further by 2.7 per cent to 1,924.6 mt.

In its forecast for iron ore earlier this month, the macroeconomic and country risk research house Fitch Solutions said that despite prices rising to a record, there was still room for further upward movement. However, it said from the second half of this year the prices could stabilize.

Suspension of economic dialogue between China and Australia has heightened the risks of supply and contributed to the recent surge in iron ore prices since China depends hugely on iron ore imports from Down Under, they said. Australian ore exports make up 61 per cent of total Chinese iron ore purchases.

According to London-based commodity markets analysts CRU said that it expected prices to decline as dynamics in the physical market could start taking over at some point. However, the timing and magnitude of the fall are challenging to predict, though.

Dutch multinational banking group ING said that the surge in iron ore prices to record levels last month was speculative. The group’s analysts said that optimism over central banks retaining supportive policies and steel production in China will remain robust.

CRU principal analyst Erik Hedborg said that though “supply is constrained relative to strong demand, there is little to support prices at current levels for an extended period”.

Iron ore also owes its current bull run to the 2019 dam accident in Brazil that cut leading producer Vale’s output to 300 mt then, and last year from 400 mt it had scheduled for these two years.

The London-based analyst firm said that Chinese demand for iron ore has been robust after the Covid-19 outbreak in early-2020.

“Steel production has been elevated due to sharply rising steel demand caused by stimulus measures boosting infrastructure investments and strong demand for steel-containing goods, both in China and on the export market,” Hedborg said.

Fitch contends that strong demand from global steel and Chinese producers will keep prices elevated, as supply growth is lagging. CRU’s Hedborg feels that the global market is as tight as it was during the same time last year due to a combination of “improved inventory situation in China and higher demand in the rest of the world”.

The CRU analyst said that iron ore prices were higher than those of the highest-cost producer, and some low-cost producers were enjoying a margin as high as 90 per cent.

“We see little support for the iron ore price rising this high above the costs of the marginal producer in the market,” Hedborg added, pointing to an improvement in seaborne supply besides a seasonally stronger supply period.

CRU’s Hedborg said that a fall in iron ore prices was subject to two factors in the market. One, if China continues to stimulate steel demand and its production stays higher, iron ore demand will remain at higher levels.

The other factor is supply risks, mainly from Brazil, since miners could face delays in getting licenses and seasonal ones such as ship loader availability.