Spot iron ore prices inch towards USD 80, steel surges further up

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14 November 2016

Spot iron ore prices spiked to $79.81 per ton on Friday evening with opening session this morning witnessing traders talking in the range of $80-81 per ton.

KATM feel that this rally could end any day now as the current levels are far above the fundamentally calculated numbers for the prevailing environment. Global miners did not anticipate this sort of a spike but thanks to the Chinese buying, the share prices of all these companies are touching year highs.

The Chinese authorities are taking steps to cool the situation by holding the movement in the property market. The stimulus impact is also likely to fade by the year end and the oncoming winter slowdown is also to put a lid on the demand in the short term.

KATM is expecting the prices to fall back over the next few months but the typhoon season in Australia may still give a last support to the prices around mid-January. Australian and Brazilian producers especially Vale’s S11D and Rio’s Roy Hill will continue to ramp up output which would also change the market direction from sellers’ market to buyers’ market due to the rising stockpiles at Chinese ports. By mid-2017, the prices are expected to cool down to USD 45-50 per ton range.

So from current USD 80 per ton the prices of iron ore could hit USD 50 by mid-2017, though the short term departure from higher levels would witness a gradual cooling.

Coking coal prices have shown some mild stability with prices holding in the range of USD 309-312 per ton levels and there is not much headway expected in the commodity. China is relaxing the mining holidays and the domestic mining is also picking up in the southern region before the long winters set in.

HMS (80:20) scrap has also touched a high of USD 263-265 per ton in the last few days due to the support attained from iron ore and coking coal which is allowing the mills to sell steel at relatively higher levels.

Copper and Aluminum which used to be isolated from relative events have seen a sharp upside in the recent weeks as Copper surge up USD 1000 per ton in week while Aluminum was up by USD 18 per ton in the same period.

Thermal coal was the only commodity to witness a negative movement with marginal downside of USD 0.23 per ton change in a days’ trading. Thermal coal RB1, with 6000 NAR rating was down to USD 100.90 per ton FOB South Africa.

Winter season could be a game changer for the commodity price rally in the near term as production and mining would see some slowdown and may help in restricting the rally’s upward movement.