Market wrap: iron ore prices remain elevated as trade tensions flare

We examine a number of important developments in the iron ore market from the past week.

The geopolitics game

As trade tensions again flare between China and the US, Australia and its all-important commodity exports – particularly iron ore – appears to have been caught in the cross-fire.

In a piece published by the Chinese tabloid the Global Times, it was sensationally pointed out, that:

‘While China is the only choice for Australia's massive commodity exports, Australia is not necessarily the only option for China. There are also other countries like Brazil that can supply huge amounts of iron ore, coal or LNG to China.’

Such comments after China-Australia trade tensions over barley and beef trade have themselves intensified in the last week.

Iron ore does indeed remain an integral part of Australia’s economy, with the Department of Industry, Science, Energy and Resources, anticipating that the country’s iron ore export earnings are set to exceed $100 billion in 2019–20, driven by higher prices. Export volumes are also expected to reach 874 million tonnes in 2019–20.

Is the suggestion from the Global Times feasible? According to analysts from UBS, not really. Speaking to the Australian financial Review, Glyn Laycock, an analyst from UBS, noted that due to the ‘tightness’ of the iron ore market, it would likely be difficult for ‘China to source iron ore from alternative sources.’

Iron ore prices remain elevated, inventories fall

Overall, Chinese inventory levels have recorded broad declines during the early parts of May, according to the Metals Market Index (MMi).

Specifically, for the week ending 8 May, iron ore inventories at Chinese ports fell by 2.29 million tonnes, or 2.18%, to 102.96 million tonnes, while steel inventories in China witnessed more pronounced declines, falling 1.24 million tonnes, or 5.50%, to 21.30 million tonnes.

Reflecting on the current market conditions, the MMi further noted:

‘Mills in Tangshan may have control movements for ensuring air quality, so the demands for lump will rise to high levels in the short run.’

‘However, current inventory at ports along with the increasing coke price may restrain the lump premium. Some mills in South China may decrease their lump demands when the rainy season comes, this will also pressure lump prices to some extent,’ the MMi also said.

Amongst all this, iron ore prices remain elevated, with iron ore futures contracts not dipping below US$70.00 per tonne until March CY22.

At the time of writing, the front-month 62% Fe, CFR China (TSI) Futures contract traded at US$88.74 per tonne.

BHP, FMG and Rio Tinto share prices flat

Amongst all this, Australia's big three iron ore miners – BHP Group (BHP), Rio Tinto (RIO) and Fortescue Metals Group (FMG) all traded broadly flat over the last five trading sessions. By the close on Friday, the BHP Group share price was down 2.52% over the last five sessions, FMG was up 0.08%, while RIO was up 0.31%.

How to trade the big three miners – long and short

What do you make of the current situation: do you see bullish or bearish opportunities? Whatever your view, you can use CFDs to trade any of Australia’s big three miners – long or short – using IG’s world-class trading platform.

For example, to buy (long) or sell (short) Fortescue Metals Group using CFDs, follow these easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘FMG’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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