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Iron ore prices hit seven-year high and continue to rise

Mining industry / Analytics

The construction boom in China amid complicating relations with Australia, the country's largest supplier of iron ore raw materials, and a reduction in the forecast supply from Brazil, has led to an unprecedented increase in world iron ore prices.

Iron ore prices hit seven-year high and continue to rise

Iron ore prices have reached a seven-year high and continue to rise. The main factor is the demand from China, the main world importer of iron ore, where ore prices increased by 65% ​​over the year. Singapore futures have risen 70% year-over-year, according to Bloomberg, to a record high since the start of trading in 2013.

Ore rises in price against the backdrop of rush demand for steel, says Ayrat Khalikov, executive director of Gazprombank's Center for Economic Forecasting: in China, the United States, the EU and other countries, governments stimulate economic growth by supporting construction, which also leads to an increase in demand for building materials, including including steel products. The main player in the global iron ore market is China, he explains, which imported 72% of ore from Australia from January to November.

In January-October, China increased its share in world steel production from 54% in 2019 to 58%. At the same time, ore imports from Australia and Brazil have been at a low level in recent months.

Brazilian Vale lowered its forecast for iron ore production to 300-305 million tons for 2020 and gave a conservative forecast of 315-335 million tons for 2021.

China is the main client of the world's leading exporter of iron ore, Australia. But after Australia called for a comprehensive investigation into the circumstances and causes of the coronavirus pandemic, relations between the countries have escalated, resulting in massive trade restrictions. So, in October, China actually stopped accepting Australian coal. The country has also restricted or stopped imports of a range of other goods. Fears that trade restrictions will spread to iron ore are forcing Chinese buyers to build up inventories.

The largest metallurgists of the PRC through the Chinese Iron and Steel Association (CISA) are already asked the State Office for Market Regulation and the Securities Commission to investigate pricing in the iron ore market.

The Severstal representative believes that the shortage in the steel market will drive prices upward for some time to come. However, sooner or later the market should be balanced: deferred demand will end, supply will react to rising prices. According to the interlocutor of Kommersant, this will happen on the horizon of three months. On December 9, the main shareholder of MMK, Viktor Rashnikov, said that, according to his expectations, Vale's production would return to target levels next year, and analysts' forecasts indicate that “China will operate at the level of this year, without growing year-on-year,” therefore ore prices should "calm down". According to Ayrat Khalikov, the current prices are too high for consumers and cannot stabilize at this level in the long term.

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