The Iron Ore futures in China started setting new records last week following news that supported a tight supply outlook. The most traded May 2019 iron ore contract on the Dalian Commodity Exchange briefly touched limit-up at 694.5 yuan ($US103.49) a tonne in late trade before ending at 690.5 yuan, a 5.3% rise from Tuesday's record close.
BHP - the world’s biggest miner had stated that it expected lower output of the steelmaking raw material due to disruption and damage caused by a cyclone. The initial estimates indicated that its iron ore production would take a hit of about 6-8 million tonnes after cyclone Veronica affected its operations last week. BHP’s production guidance followed news that Brazilian miner Vale SA, the world’s top iron ore supplier, failed to obtain stability certificates for 13 dams under review following the rupture of another dam in January that killed hundreds.
Rio Tinto, the world’s No. 2 miner of the steelmaking material, on Monday cut its 2019 outlook for iron ore shipments from Australia’s Pilbara region due to production disruption and damage caused by tropical cyclone Veronica and an earlier fire at its port in the state.
Another aspect that boosted the Iron Ore Prices was a news that steel mills in the two biggest steelmaking cities in China - Tangshan and Handan - will be required to continue production restrictions in the second quarter to improve air quality.
The Iron ore prices have already jumped 40% since November to more than $85 a tonne, due to concerns about a supply crunch caused by Vale’s decision to slash 70m tonnes of annual output in the wake of a dam burst in January that may have killed 300 people.
On the other hand, higher iron ore exports are expected to propel Australia’s resource and energy export earnings to a record $278 billion this financial year, giving last week's federal budget a $1.4 billion boost.
Our Analysts do foresee the spike in Iron Ore prices to continue however, it may not be substantial going forward as is has already shot up and hovering close to its resistance. So, it would be wise to tread carefully while investing in Iron Ore stocks.
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