Supply and stocks
- The wider iron ore stock situation is key here: Concerns about seaborne supply resume.
- Heavy rainfall and mining issues at Vale's operations in Brazil are another big risk to iron ore supply in the January-March 2020 period.
- Brazil shipped 26.73 million tonnes of iron ore in January, down 19.33% year on year. Vale lowered its March-quarter sales guidance to 68-73 million tonnes, from 70-75 million tonnes.
- 2 million tonnes may only amount to a day’s worth of trading in China let alone the world, but with stocks still comparatively low at 131 million tonnes, down 8 million tonnes from 2018, a further reduction in fresh tonnage is causing market jitters.
- In 2019, disruptions to Brazilian and Australian supply saw seaborne iron ore prices hit five-year highs and a further year of destocking – usually a year of destocking (as in 2018) would be followed by two years of replenishment.
- Much of that supply returned - notably in the third quarter - but stocks of iron ore at Chinese ports are yet to revive, as of February 6, after briefly falling further in January. Steel mills typically increase raw material buying before Lunar New Year holiday as blast furnaces continue running during this period and mills prepare for consumer demand in the spring.
- The outbreak of the virus may also affect local ore production, which rose last year to partially offset the reduction in seaborne supply, and transportation from the ports to plants.
Logistics since outbreak began
- Iron ore demand in China continues to reach new heights even as a rally in Chinese scrap supply is creating new competition to supply steel producers.
- Last year, iron ore demand in China rose by 5.3%, far below the growth in steel but outside China it also increased and often in markets such as South Korea and Japan, where steel made primarily from scrap, declined.
- Demand of iron ore was expected to be robust after the Lunar New Year holiday for seasonal reasons . Expectations have now been tempered by alleged voluntary production cuts by mills in light of anticipated weak demand downstream and a large revival in steel industry stocks both at producers and resellers, which was planned in advance of the outbreak.
- If suppliers’ fears are realized, and steel end users fail to return to the market, a drop in iron production and iron ore demand is inevitable. If demand is merely postponed, then the impact of short-term production cuts could cause 2016-style price spikes
Price since outbreak began
- Buyer source said transportation restrictions were more severe in Shandong and Jiangsu provinces, compared with northeast China.
- Demand for iron ore has been and is likely to be affected more by the cuts in steel production than transportation restrictions.
See also - Coronavirus impact on key parts of the steel supply chain:
Manganese ores and alloys
Chrome ore and alloys