Iron ore prices bounce back Tuesday, trend expected to continue

Iron ore spot markets reversed on Tuesday after witnessing heavy losses in the past several days. The trend will likely continue on Wednesday as Chinese futures remained strong overnight.

As noted by Metal Bulletin, the spot price for benchmark 62 percent fines increased to US$82.01 (AU$107.32) per dry tonne. In contrast, the prices have suffered a decline of as much as 11.9 percent in the past seven sessions. Lower grade ores have performed even more impressively. The price for 58 percent fines upped 0.86 percent to reach US$55.30 (AU$72.37) per tonne. Iron ore futures trading on the Dalian Commodity Exchange increased by 3.1 percent to reach 569 yuan.

The iron ore spot prices have reached their highest and lowest in the last six weeks. On Feb. 21, the prices rose to a maximum of US$94.86 (AU$124.13) a tonne, surpassing the most optimistic predictions. In contrast, this week, the prices were brought down to their lowest of US$81.57 (AU$106.74).

According to Credit Suisse research analyst Matthew Hope, the reversal seen in iron ore spot prices was not a surprise. If physical prices for steel remained high, buying would continue, he said in a research note. “We suspect that they will recover under the force of demand as April approaches and construction winds up. Steel mills will watch pricing, but if physical prices and steel prices stay high, they will soon return to start buying iron ore again,” he said.

The swing in the tide can be attributed to stockpiles of iron ore at Chinese ports and steel mills. "Falling futures caused uncertainty for steel mills and they stopped buying iron ore. This buyers'-strike (in turn) caused iron ore to fall," Hope said. "But physical steel has declined only 3 per cent because construction season is underway and demand is real."

With regard to inventories, Hope said iron ore stocks are “not high.” The stocks held by steel mills were “normal at 25 days of average” and that the Chinese steel inventory is "relatively depleted.”

The volume of iron ore stockpiles being held at Chinese ports rose to 133.95 million tonnes, according to Umetal. This was an increase of 19.5 percent from a year earlier.

Credit Suisse forecasts that spot price of iron ore will average US$95 (AU$124.32) a tonne in the second quarter. It will further slide down in the third and fourth quarter, recording US$70 (AU$91.6) a tonne and US$55 (AU$71.97) a tonne respectively. The company predicted the price will average US$78 (AU$102.07) a tonne in 2017 and US$58 (AU$75.9) a tonne in 2018.