Iron Ore’s Stunning Rally Faces Challenge as Supply Risks Fade

(Bloomberg) -- Iron ore’s stunning rally this year, underpinned by China’s demand for the steel-making raw material, risks slowing as miners ramp up output.

The industrial material blasted past $120 a ton on Tuesday, propelled by China’s stimulus to prop up its pandemic-hit economy and supply disruptions that constrained output of the raw material.

Miners, who have gained from the more than 30% jump in iron ore prices this year, now see the rally as unsustainable. BHP Group expects prices to ease from current levels while volatility remains. That’s similar to the view of top producer Vale SA, which said last month it doesn’t see support for high prices in the short- to medium-term.

Iron ore demand from mills in China is likely to remain strong, analysts at ING Bank NV said in a note on Wednesday, adding that uncertainties over Brazilian supply in recent months have also been supportive for the market. “But as these uncertainties subside, we would expect prices to ease,” according to the note.

Supply from Brazil, which is in the grip of the coronavirus, has been gradually picking up, with 1.68 million tons shipped daily in the first 10 business days of August, an increase from 1.48 million tons a day in the 23 business days last month. Exports from Australia’s leading port also hit a record July.

China’s economic stimulus has raised hopes of a recovery in downstream activity, bolstering the outlook for iron ore demand. Crude steel output topped 90 million tons for a third straight month in July, and is on course to breach 1 billion tons this year.

The macroeconomic drivers have been positive for the ferrous market, said Ban Peng, an analyst at Maike Futures Co. However, when the actual demand for steel is revealed as the market enters the peak season in September, the rallies of iron ore and steel may slow down, he said.

Iron ore rose to as much as $123.71 a ton on the Singapore Exchange on Wednesday, the highest in more than six years.

©2020 Bloomberg L.P.