Could Seaborne Iron Ore Prices Soften More?
Volatility in iron ore prices
After rising unexpectedly, iron ore prices have fallen into bear territory once again. As China gets ready to cut its steel capacity for four months on November 15, 2017, the outlook for the main steel-making ingredient has turned bleak. Iron ore prices have been on a roller-coaster ride in 2017. They peaked at $95 per ton in February 2017, only to fall to $53 per ton in July 2017. July and August saw a significant rise in prices, which then reversed in September. For the week ended September 22, 2017, iron ore prices fell 12%, the biggest fall over a week in the last 16 months.
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Credit tightening and iron ore prices
Whereas the anticipation of lower iron ore demand due to reduced capacity is acting on iron prices, there are other contributing factors as well. The authorities have started tightening credit conditions in China after warnings from many global institutions regarding the unsustainability of the country’s current debt-driven growth. Construction and infrastructure are the major beneficiaries of this debt-driven demand growth. Tightening could lead to a slowdown, impacting iron ore demand.
Iron ore miners’ performance
While Cleveland-Cliffs is affected by different factors than seaborne peers (XME), its stock price still takes strong cues from iron ore prices. In the rest of this series, we’ll discuss factors affecting seaborne iron ore prices and try to gauge the outlook for iron ore prices. These factors could help investors understand Cleveland-Cliffs stock’s future price direction.