Iron ore price crushed again

Railroad transporting ore from Vale’s Carajás complex in Brazil, the world’s largest iron ore mine currently being expanded at a cost of $20 billion. Source: Vale

After attempting a comeback since ending September at a more than 5-year low of $77.50 a tonne including a surge on Monday, iron ore prices are getting crushed again.

Northern China 62% Fe imports tracked by The SteelIndex on Thursday exchanged hands for $80.50 a tonne, down $1.70 on the day and 3.1% weaker since Tuesday.

After hitting a high of $158.90 in February, the industry was jolted on March 10, when iron ore suffered the worst one-day decline since the 2008-2009 financial crisis, cratering 8.3% in a single session.

The recovery from there was swift, but by mid-June ore was sliding again and quickly became a one way bet as the market fretted about a flood of new supply just as demand in top consumer China slowed.

Some observers were calling a bottom for the price of the steelmaking ingredient after Monday’s jump following data from China showing iron ore imports rebounded to the second highest this year.

China, which consumes more than two-thirds of the world’s seaborne ore and forges almost as much steel as all other countries, recorded a nearly 17% increase in imports over the first nine months of the year according to official data.

At the same time output from domestic Chinese mines which struggle with high costs and grades as low as 15% also increased, growing 8.5% to end-August.

This at a time when steel production is rising at a more modest 2.6% clip.

Two short years ago $120 a tonne were considered a price floor; the thinking being that any extended period below this level would drive out high cost Chinese mines.

When $120 came and went, $100 was considered the level swing producers would abandon the market.

With ore hovering either side of $80 for more than a month assumptions about the domestic Chinese market are being severely tested.

The country produces some 350 million – 400 million tonnes a year on a 62% Fe-basis, although reliable stats are lacking (this figure is calculated working backwards from pig iron production).

A new research report by Minerals Value Service