Steel demand supporting iron ore imports
Chinese (FXI) iron ore imports have remained strong in 2019 year-to-date due to strength in steel production as prices remain high. There have also been several rounds of stimulus in China, which are supporting steel demand. Moreover, a new round of environmental inspections is underway in China’s industrial hubs. 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), form more than two-thirds of the total seaborne iron ore supply. So supply tightness and Chinese steel demand are benefiting these miners.
Iron ore port inventories dwindling
Chinese iron ore inventories are dwindling as supply isn’t keeping up with demand for iron ore. Inventories at Chinese ports have fallen to 125 million tons—close to levels last seen in February 2017—after remaining elevated for months. As long as miners can’t increase their output in the short term, iron ore prices are expected to remain elevated.
Iron ore prices
Iron ore prices are currently trading above $100 per ton, which is close to a five-year high for the commodity. This trend makes iron ore an exception when other commodities, including copper and aluminum, are on a losing spree due to the ongoing US-China trade war and lingering demand concerns.
While Chinese steel prices have remained elevated in 2019, supporting demand for iron ore, they’ve started weakening over the last few weeks. Steel demand in China’s downstream sectors is easing somewhat. If this trend persists, the current supply-and-demand equation for iron ore could weaken. This shift could lead to some softness in iron ore prices soon. However, the supply side should remain tighter for the medium term.