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Supply or Demand: What Will Weigh on Iron Ore Prices More?

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Jun. 14 2019, Updated 11:20 a.m. ET

Chinese port inventories declining

Chinese iron ore port inventories are another variable investors watch to get insight into the demand and supply of iron ore. Currently, the port inventories are declining. According to SteelHome consultancy, Chinese port inventories fell to 121.6 million tons last week, the lowest since early 2017. As long as miners can’t increase their output in the short term, iron ore prices are expected to remain elevated.

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Increased stimulus talks

The Chinese administration (FXI) is on track to increase stimulus to support the economy. Yesterday, the Chinese Vice Premier urged for more support for the economy. He said that China has plenty of tools and is capable of dealing with various challenges. Economists are of the view that the fiscal stimulus in China could double. The increased stimulus should also support demand for steel and ultimately iron ore in the country.

Iron ore miners

Tighter environmental controls are pushing Chinese mills to go for higher-quality imported ore as opposed to domestic ore. Seaborne iron ore exporters including Vale (VALE), BHP Billiton (BHP), and Rio Tinto (RIO) generate more than two-thirds of the total seaborne iron ore supply. So supply tightness and Chinese steel demand are benefiting these miners.

Apart from the supply, the iron ore price outlook is dependent on the Chinese steel price outlook. While Chinese steel prices have remained elevated in 2019, they’ve started weakening over the last few weeks. The steel demand in China’s downstream sectors is also showing signs of cracking. If this weakness persists, the current supply-and-demand equation for iron ore could weaken. This shift could lead to some softness in iron ore prices soon.

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