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Iron Ore Prices Are Steady amid Signals of a Production Cut

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Iron ore prices are steady

Benchmark iron ore prices were trading at $54 per ton on May 4. Prices recovered well after hitting a decade low of $48 per ton in April. Iron ore prices are a key metric that steel play investors should watch. Iron ore is the primary raw material for steel producers using traditional blast furnaces.

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Prices recover

The previous chart shows the recent trend in iron ore prices. As you can see, prices were steady over the last couple of weeks. However, in 2015, iron ore prices corrected more than 20%. Last year, they fell by close to half.

The addition of fresh capacity by mining giants like Rio Tinto (RIO), BHP Billiton (BHP), and Vale (VALE) increased the supply of iron ore in the markets. Combined with the demand slowdown in China (FXI), this put pressure on iron ore prices. China is the largest market for seaborne iron ore.

Production cuts?

Vale signaled that it might hold back some of the forecasted iron ore supply. This would benefit the iron ore industry because it’s grappling with a supply glut. Major producers increased the iron ore supply in the last few quarters. They intend to displace marginal iron ore producers.

AK Steel’s Magnetation joint venture supplies it with iron ore pellets. It has been facing financial difficulties as iron ore prices tumbled. AK Steel indicated that it wouldn’t financially support this joint venture. Instead, it would rather source iron ore from the market.

US-based miners, like Cliffs Natural Resources (CLF), would benefit if more steel companies source iron ore from third parties, instead of their captive mining operations.

Nucor uses steel scrap as the primary raw material. We’ll discuss the latest trends in steel scrap prices in the next part of this series.

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