Iron ore prices posted a strong finish to trading last week. The CME Group TSI contract for March delivery finished the week with a strong thrust higher, up $1.36 per-metric ton for a gain of 1.66%. After reaching a swing high near $94 early last month, the metal saw prices decline back under $81 per-metric ton as recently as last week before finding more buying interest.
The SGX Iron Ore TSI contract also ended last week on a high note. The exchange’s FEF-SGX TSI iron ore contract for March delivery ended higher Friday by $2.84, for a gain of 3.42%.
What’s Behind the Recent Upside?
In our opinion, the two major factors influencing iron ore prices are: Supply constraints and the state of global trade.
Iron ore prices have seen a strong uptrend as worries over global supply have intensified. Specifically, concerns over iron ore supply coming out of Brazil have intensified as new regulations have been implemented and production quotas are being revised lower by some analysts. Disruptions at the country’s Vale’s mines have played a major role in supply concerns, as some estimates state that the mines account for some 90 percent of Brazil’s total output.
Any shortfalls from Brazil are also not likely to be made up by China. Although some analysts have suggested that China could look to take advantage of higher prices, others are of the opinion that if Chinese mines had the capability to increase output, they already would have. According to a recent article from bloomberg.com, China does have a robust ore-mining industry but has cut production in recent years due to superior-grade and lower-costs from foreign suppliers.
Hopes for a U.S./China Trade Deal
Prices may also be getting a lift as U.S./Chinese trade talks continue. According to a recent article from Reuters, recent talks that took place in Washington D.C. were productive and could potentially lead to a sit-down between U.S. President Trump and Chinese President Xi Jinping to hammer out a comprehensive agreement. As the globe’s first and second-largest economies, any further escalation in the tariff war could have a significant impact on the GDP of both nations, while also having a trickle-down effect on the global economy.
According to a report from CNBC, Chinese manufacturing data shrank in February according to a private survey. Other gauges of economic activity have also pointed to a slowing Chinese economy. With its reliance on exports, Chinese demand for iron ore could potentially weaken if a deal on trade is not reached. Assuming an agreement is made in the weeks or months ahead, however, Chinese demand for iron ore could remain on the stronger side of the ledger allowing the market to potentially challenge recent highs.
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