LAUNCESTON, Australia, Nov 28 (Australia) – It would seem to defy logic that iron ore prices have continued to rise in recent weeks even as China steps up the idling of steel production as part of efforts to limit air pollution over winter.
While there is a historic correlation between iron ore and steel prices in China, the world’s largest importer of the former and producer of the latter, it would have been reasonable to expect them to have diverged in recent weeks, and in the coming months.
Steel prices should outperform iron ore, given it’s steel output that is being restricted, leading to a tightening of the supply side of the market. However, iron ore suffers from no such supply-side scarcity, rather just the opposite, with abundant cargoes available from major exporters Australia, Brazil and South Africa.
With China producing less steel, and signs that iron ore imports are starting to moderate, it would be logical to expect iron ore prices to slip.
However, the spot price of 62 percent iron ore at the Chinese port of Qingdao .IO62-CNO=MB, as assessed by Metal Bulletin, has rallied 15 percent this month, to end at $67.27 a tonne on Monday. It is also 26 percent above the low so far this year of $53.36 from June 13, although the price is still well below the peak of $94.86 on Feb. 21.