uploads///part  iron ore

Iron Ore Rose Due to Increased Chinese Demand

By

Sep. 12 2016, Updated 12:06 p.m. ET

Iron ore

Currently, the benchmark iron ore contract for delivery to China is hovering at $59 per metric ton. So far, iron ore has gained 34% this year. The price gains are a welcome break for leading iron ore companies (GNR) such as Cliffs Natural Resources (CLF), Rio Tinto (RIO), and Vale (VALE). Iron ore prices have been sliding after almost hitting the $200 per metric ton level at the beginning of 2011. Even with the recent price rise, iron ore prices are only about one-third of the peak in 2011.

Article continues below advertisement

Prices have been falling

Benchmark iron ore prices have lost ~40% and 50% in 2015 and 2014, respectively. At the beginning of the year, iron ore prices weren’t expected to see such a major rebound. There were obvious reasons for being bearish on iron ore. On the supply side, markets were oversupplied with major miners including Rio Tinto, BHP Billiton (BHP), and Vale increasing their production despite the prevailing glut.

The demand side of the equation looked even scarier amid concerns that Chinese steel demand has peaked. China is the largest consumer of seaborne iron ore. It accounts for two-thirds of seaborne demand. As a result, lower Chinese demand is negative for iron ore prices.

What happened in 2016?

Most analysts had written off iron ore as being dead long ago. So, why did iron ore prices have a substantial price increase this year? One factor that can be attributed to iron ore’s price action this year could be increased Chinese demand. Chinese steel production fell YoY (year-over-year) in January and February. Since then, production has risen YoY every month.

In the next part of the series, we’ll see how this is impacting iron ore prices.

Advertisement

More From Market Realist

  • MP Materials mine
    Basic Materials
    MP Materials (MP) Is an Attractive Play on Rare Earths
  • Woman looking at data
    Basic Materials
    Should You Buy SLV Stock Before Another Silver Short Squeeze?
  • Freeport-McMoRan employee at a facility
    Basic Materials
    FCX Stock Is a Good Buy for Investors as Copper Prices Top $10,000
  • Alcoa logo
    Basic Materials
    Alcoa (AA) or CENX: Picking the Best Aluminum Stock
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.