Surging Demand from China Drives Iron Ore Prices Sharply Higher

Faced with operational challenges and weather disruptions, the world's leading iron ore mining companies have struggled to keep up with the robust demand from China in Q1/2021, a factor that has propelled prices to their highest levels in a decade.

Brazil's iron ore producer, Vale SA, extracted less ore than anticipated in the past quarter due to lower productivity at a mine and a train excavator fire.

Shipments from mining conglomerate Rio Tinto were also disrupted due to wet weather conditions in Pilbara, Western Australia.

On Monday (April 19th), iron ore prices surged above $180 per ton, reaching the highest level since May 2011, following news that China's crude steel output had increased by 19% in March compared to the previous year.

Biểu đồ giá quặng sắt (Nguồn: Singapore Exchange)

Iron Ore Price Chart (Source: Singapore Exchange)

Daniel Hynes, Senior Commodity Strategist at ANZ Banking Group, stated, "With the market relatively tight at the moment, not meeting current demand certainly is somewhat supportive for prices."

Both Vale and Rio maintain their full-year production forecasts, although the slower recovery than expected at Vale may lead the market to reassess expectations.

Rio cautioned that their annual output projection of up to 340 million tons carries post-production risks. Furthermore, the tropical cyclone Seroja impacted their Pilbara mine and port operations in April.

"Not all of that is going the right way for Rio Tinto as they continue to grapple with various challenges across their operations and projects, but key commodities iron ore and aluminum are benefiting from China's carbon reduction trend," stated Tyler Broda, Mining Analyst at RBC Capital Markets.

Steel prices in China ended Q1/2021 at the highest level in a decade due to construction activities and demand in this period surpassing both 2020 and 2019.

The highest demand and profit margins since 2018 have heightened the need for higher-quality iron ore products, and China's new focus on reducing steel production emissions might limit exports in 2021, thus supporting global profit margins.

Strategist Daniel Hynes noted that short-term prospects for iron ore prices remain strong as Chinese steel mills accept the current high prices for their primary raw material while maintaining high profit margins.

However, he added that iron ore prices are now above fair value and there is a risk of a price decline by the end of the year if Beijing plans to curb steel production to control greenhouse gas emissions, which will start affecting demand.

"If we see China's steel output down 1%, that could potentially impact about 15 - 20 million tons of iron ore," he stated.


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