Price of iron ore continues to tumble

The price of iron ore has continued to tumble, with the price of the steelmaking commodity falling from a record $233 a tonne in May to $94 on Monday.

The fall in price comes as China’s moves to clean up its heavy-polluting industrial sector, in which coal fired steel mills contribute a significant portion of the countries high emission total. Beijing has imposed rapid steel production cuts in an effort to slow its construction-intensive economy. If this policy persists, iron ore demand could be 100m tonnes lower in the second half of the year than it was in the first, and prices could fall as low as $70.

This is indicative of how China, as the worlds top consumer, can sway the market at a time where there is booming commodity demand and as economies begin to reopen from the worst of the Covid-19 pandemic.

Iron ore’s slump makes it one of the worst-performing major commodities and a notable outlier in a broader boom that has seen aluminium soar to a 13-year high, gas prices jump and coal futures surge to unprecedented levels.

UBS Group AG said the decline “has played out faster than expected.” Inventories at ports are 10% higher than a year earlier and expectations for Chinese demand to soften further coincide with forecasts for global supplies to rise. UBS predicts prices will average $89 next year, a 12% cut to its previous forecast.

Industry commentator Tim Treadgold said the iron ore price was set to be low for some time, as was its cyclical nature, and he believed they would fall even lower before rebounding.

He continued stating “You can say [the price] is in free-fall and it’s going to keep falling until it finds support and that’s not going to be for some time, and it may be down as low as $70 or less,”

“Parties and commodities don’t roll on, they come to a natural end and then everyone heads to the door at the same time. You jam up in the doorway and the price over-corrects.”

Price of iron ore continues to tumble

Vusimuzi Group

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