How Will Brexit Impact Iron Ore Prices?



Brexit’s impact on iron ore

Iron ore prices and iron ore miners such as BHP Billiton (BHP) and Rio Tinto (RIO) tumbled following the Brexit vote, but they rebounded in the days following the referendum. These movements mostly constituted short-term price volatility, and their overall impact on global steel demand should be negligible.

Most analysts also subscribe to this view. According to Bloomberg, Goldman Sachs (GS) believes that the mining sector’s exposure to Europe (HEDJ) is small. GS noted Europe’s preference for iron ore over other base metals (DBB). The broker also upgraded Rio from a “sell” to a “neutral” rating.

According to Bloomberg, “JP Morgan analysts said the UK and Europe are small contributors to global commodity demand, meaning the Brexit vote’s impact on commodity markets should be relatively muted.”

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Performances of iron ore miners

With iron ore prices strong year-to-date (or YTD), iron ore miners have recuperated from some of their losses. Cliffs Natural Resources (CLF) has outperformed with a YTD rise of 205% as of June 23, 2016. Fortescue Metal (FSUGY) and Vale (VALE) have risen by 74% and 48%, respectively. Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen by -2% and 3%, respectively.

In this series

In this series, we’ll analyze the demand-supply fundamentals for iron ore and see whether the commodity’s recent surge was just a one-off phenomenon or the start of a more sustained uptick in prices.

We’ll look at Chinese steel production growth, supply-side growth, and iron ore inventories to arrive at a potential future upside or downside in prices. These factors should help you to form a view regarding the future direction of iron ore prices.

In the next part of this series, we’ll look at what iron ore giant BHP Billiton has to say about the current demand-supply mismatch in the iron ore industry.


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