Iron ore market wrap: the Coronavirus and key mining stocks in focus

Could a major commodity stimulus in China be on the way as a result of the Coronavirus?

The economic impact of the Coronavirus (COVID-19) remains inescapable: Iron ore markets continue to come under pressure and a number of key iron ore stocks remain volatile.

Brazilian mining giant Vale (NYSE: VALE) sank half-a-percent overnight, BHP Group (ASX: BHP) dropped 0.94% today, while Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) both posted gains today, up 1.69% and 0.95%, respectively.

Smaller iron ore players such as Champion Iron (ASX: CIA) shed 2.78%, while Mount Gibson Iron (ASX: MGX) saw its share price fall more than 4%.

Iron ore prices: market dynamics examined

The 62% Fe Fines spot price rose a modest 1.52% today – to US$88.44 per tonne by the late afternoon. This comes after Chinese port prices fell yesterday.

Here, the 62% Fe Fines port price slumped 1.3% to US$87.17 per tonne; while the 65% Fe Fines port price declined some 0.9%, to US$102.95 per tonne.

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Adding to all this, as we wrote yesterday, Chinese steel inventories continue to climb. Since December 2019, the Metals Market Index reports thats there has been a strong uptick in both Total Social Steel Inventories and the Total Steel Inventories at Steel Mills.

Speaking of China’s current steel inventory situation, Macquarie analysts today noted that ‘we believe mills will continue to produce as normal and the demand uptick should be able to consume the excess inventory.’

Furthermore and based on discussions held during Rio Tinto’s recent sell-side analyst roundtable, it was pointed out that Rio Tinto:

‘Expects a major commodity stimulus in China in response to the demand impact of COVID-19. RIO noted that larger blast furnaces have been operating as normal, with the risk in the near-term around smaller operations and speed at which people return to work,’ Macquarie said.

Other slices of market commentary

Looking at the current state of seaborne iron ore deliveries, the Metals Market Index (MMi) yesterday said that from February 23 to 29, ‘iron ore deliveries leaving Australian ports fell 640,000 mt on the week to 13.81 million mt, but the proportion of shipments to China expanded to 87% from 81% in the previous week.’

It was further pointed out that:

‘Iron ore deliveries leaving Australian and Brazilian ports were 3.45 million mt, or 15%, lower from the same period last year. SMM does not expect inventories of seaborne iron ore to rise significantly at Chinese ports in the near term as steel mills maintain stable demand for iron ore given current low in-plant inventories.’

Watch this space.

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