Iron ore's rally built on as yet unrealized Brazil supply fears: Russell

reuters.com International,  Iron Ore 2020-06-11 16:38:03

Iron ore's ongoing run above $100/t is begging the question as to how long a price rally can sustain on fear of an event that is yet to present itself in the evidence.


The surge to a 10-month high on June 8 of $105.75/t in spot iron ore for delivery to China, was largely built on market concerns that shipments from number two exporter Brazil would be hit by coronavirus shutdowns at mines.


The price has eased slightly since the high to end at $103.85/t on June 10, but it has been above the $100/t level on seven of the last nine trading days.


The spot price is also up 30% since the low so far in 2020 on March 23, but to be fair part of this rally has been the resumption of economic activity in top importer China after the lifting of the restrictions aimed at curbing the spread of the novel coronavirus.


While Chinese demand is anchoring the iron ore market, the froth in the price is driven by fear that Brazil's exports are likely to drop.


The order by a Brazilian court that the country's top miner Vale close mines at its Itabira complex in Minas Gerais state after 188 workers tested positive for the coronavirus certainly added some fundamental justification to the market fears.


However, these concerns were tempered by Vale reaffirming its output guidance despite the potential loss of 10% of its iron ore output.


It's possible that Vale can still keep exports at normal levels by using stockpiles, but this assumes the halt to operations is relatively short.


In the meantime, vessel-tracking and port data compiled by Refinitiv suggests Brazil's exports are holding up.


A total of 145 vessels carrying 23.4 million tonnes of iron ore are expected to leave Brazil in June, the data showed.


It's likely that this figure will be revised upwards as more cargoes are arranged, but even if it isn't, June's total wouldn't be far short of the 24.87 million tonnes shipped in May, and would be slightly higher than April's 23.24 million.


Robust Australia, recovering South Africa

It's also worth noting that shipments from Australia, the world's largest iron ore exporter with almost 70% of China's market, have been strong as well.


June exports assessed so far are at 48.7 million tonnes, but this figure will be revised higher as more cargoes are arranged.


Australia's exports in May were 77.2 million tonnes, 75.6 million in April and 77.3 million in March, according to Refinitiv.


Comparing to the year-earlier months, only May was slightly below the same month in 2019, but a miniscule 800,000 tonnes, while April and March were both higher.


While Australia and Brazil dominate global seaborne supply, it's worth noting that exports from number three South Africa also appear to be recovering as the country gradually lifts its economic restrictions.


June loadings so far are around 6.8 million tonnes, up sharply from 4.2 million in May and 3.7 million in April, according to Refinitiv.


It is reasonable for the iron ore market to build in a premium for the fear of the loss of some Brazilian supply, but ultimately this fear will have to be realised in order to justify the higher price.


Working out how much of a premium is baked into current prices is at best an inexact science, but the forward curve for Singapore Exchange iron ore does provide some clues.


The front month contract was at a 12.9% premium to the six-month in early trade on June 11, wider than the 9.7% premium that prevailed a month ago and the 4.5% at the end of last year.


Watching whether the iron ore curve's backwardation increases or flattens may provide insight as to whether the market views the threat of supply disruptions as getting worse, or easing.


(Writing by Becky Du  Editing by Tammy Yang)
For any questions, please contact us by inquiry@fwenergy.com or +86-351-7219322.

Share this article
Connect with us

Editor's Pick

1 Mongolian coking coal e-auction trading volumes decline, reflecting weak demand 2024-03-29

Mongolia witnessed its coking coal trades through e-auctions lost strength in March, with the volume notching a new low since August 2023, according to data compiled by Sxcoal based on the trading inf

2 Weekly China coal market news summary (Mar 25-Mar 29) 2024-03-29

China's domestic thermal coal prices slide on growing bearish sentimentChina's portside thermal coal prices continued the moderate decline on March 28, owing to an excess of supply coupled with weaken

3 Weekly global coal market news summary (Mar 25-Mar 29) 2024-03-29

Newcastle thermal coal prices soar as India, Vietnam ramp up importsNewcastle thermal coal futures extended the uptick for three consecutive trading days, driven by increased imports from India and Vi

4 Germany's hard coal imports fall 25.8% on yr 2024-03-29

Germany imported 2.40 million tonnes of hard coal in January 2024, falling 25.80% from the year-ago level, according to preliminary data from German Statistics Bureau.The imports, however, were 8.33%

5 Vietnam Feb coal output hit 5-yr low 2024-03-29

Vietnam's coal production in February fell substantially to a new low since March 2019, latest customs data showed.The country produced 3.03 million tonnes of coal in February, slumping 21.23% from 3.

6 Yankuang Energy 2023 net profit down 39.62% YoY to 20.14 bln yuan 2024-03-29

Yankuang Energy Group Co., Ltd., a major state-owned mining group in China, earned a net profit of 20.14 billion yuan ($2.79 billion) in 2023, slumping 39.62% from last year, according to the company'

7 China futures market updates at close (Mar 29) 2024-03-29

Check out latest updates on the Chinese futures market for coking coal, coke, iron ore and others at close.

8 China Coal Daily Track (Mar 29) 2024-03-29

Thermal coalProduction area Thermal coal prices edged up in major producing regions, with some grades rising 5-10 yuan/t. This was mainly attributed to a periodical wave of restocking activity, leadin

9 CISA proposes steel mills to reduce production amid supply-demand imbalance 2024-03-29

China Iron and Steel Association (CISA) called for production controls at steel mills in response to a lacklustre steel market characterized by high output, cost and stocks yet low demand, prices and

10 China's major coal power producer returns to profit, yet challenges persist 2024-03-29

Huaneng Power International, Inc., one of leading listed coal-fired power producers in China, recorded a profit last year after losing money for two years.In 2023, the company recorded operating reven

Most Read Articles

1 China futures market updates at close (Mar 26) 2024-03-26

Check out latest updates on the Chinese futures market for coking coal, coke, iron ore and others at close.

2 Shanxi faces economic pressure as coal production and sales slump 2024-03-26

Northern China's Shanxi province is grappling with economic challenges in the first quarter of this year, as its pivotal coal industry experiences a notable decline in production and sales.At a govern

3 Inner Mongolia sets slightly higher coal output target in 2024 2024-03-28

Northern China's Inner Mongolia aims to produce 1.22 billion tonnes or so of coal this year, said Inner Mongolia's energy bureau.To achieve this target, the region plans to keep the total production c

4 Mongolian coking coal prices in mixed trends; China's market improves 2024-03-26

Mongolian coking coal prices posted mixed trends at the border crossing Ganqimaodu on the China's side, a price pattern different from previously continuous downturn, as demand from Chinese buyers par

5 China met coal market in figures (Mar 28) 2024-03-28

China coking coal, met coke and steel market key figures in focus.

6 Japan Feb crude steel output down 3.8% MoM 2024-03-27

Japan produced 6.99 million tonnes of crude steel in February, falling 3.8% month on month (MoM) yet up 1.1% year on year (YoY), according to data released by the Japan Iron and Steel Federation.The o

7 China's coal mining and washing industry profits down 36.8% YoY in Jan-Feb 2024-03-28

Profits in China's coal mining and washing industry totaled 95.48 billion yuan ($13.2 billion) in January-February, down 36.8% from a year earlier, according to data from the National Bureau of Statis

8 China thermal coal market in figures (Mar 27) 2024-03-27

China thermal coal market key figures in focus. The latest data for thermal coal prices, stocks, shipments in major production areas, transfer ports and most followed downstream sector data.

9 China Coal Daily Track (Mar 26) 2024-03-26

Thermal coalProduction area Mine-mouth thermal coal prices were mixed. More coal trucks were arriving at mines with premium grades, pushing up prices by 5-10 yuan/t. But these mines saw no queues of t

10 Newcastle coal prices rebound on Vietnam's buying spree, Baltimore bridge collapse 2024-03-27

Newcastle thermal coal futures continued to strengthen in the first two trading days of this week, driven by strong purchases from Vietnam, and the bridge collapse in Baltimore that added to supply co