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Iron Ore Pricing Pressures Likely to Persist

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Dec. 4 2020, Updated 10:52 a.m. ET

Iron ore price rally stalling

As we learned in our last series about the commodity, the iron ore price rally that began in April wasn’t supported by any fundamental change in either demand or supply. Even the production cutbacks announced in April 2015 by BHP Billiton (BHP) (BLT), Vale (VALE), and Fortescue Metals Group (FSUGY) were driven by a need to reduce capex and curtail production from high-cost operations. And these cutbacks were temporary in many cases. In fact, Rio Tinto (RIO) reaffirmed its previous expansion plans.

Cliffs Natural Resources (CLF) mainly operates in the US market. It’s facing many issues, including higher steel imports into the US that are negatively impacting steelmakers such as AK Steel (AKS) and U.S. Steel Corporation (X), among others.

U.S. Steel Corporation currently forms 3.9% of the SPDR S&P Metals and Mining ETF (XME).

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Demand side remains weak

As we’ve seen in the previous parts of this series, almost all the indicators for industrial and manufacturing activity in China remain weak. The Chinese government is taking steps to revive economic activity and has cuts rates three times in the last six months. Following the recent spate of weak data out of China, current market consensus is that another rate cut and other monetary easing measures may be in the cards.

Pricing pressures persist

We have yet to hit bottom in the property sector, which should mean an uptick in steel and consequently iron ore demand in China. On the other hand, almost all of the iron ore miners are cutting costs, which is driving the cost curve down. This will put additional pressure on prices.

You can keep track of the latest developments in the industry by visiting our Iron Ore page.

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