Iron ore prices hit their highest in a decade

Iron ore prices continue to rise and are currently at their highest level since 2010 on the back of strong Chinese demand and restricted supply. Increasing consumption and falling domestic production in China pushed the price of 65% Fe Brazilian fines over $136 per tonne today, the highest since February 2014. Limited seaborne supply also contributes to price strength.

 

Crude steel output hit an all-time high in July in China and remained high in early August. During the first ten days of the month, daily steel production averaged 2.99mt, only marginally below the 3.0mt record hit during the last ten days of July.

 

China’s iron ore miners are seemingly struggling to meet the rising demand from steel mills. While total production during the first seven months of the year was up by 3.6%, July production was down by 1.3% year on year and 6.8% month on month.

 

Steel mills continue to draw heavily from port inventories as a result. Despite the record imports in July, iron ore stocks dropped for the last two weeks and currently stand just above 113mt.

 

Combined seaborne supply out of Australia and Brazil also remains below the last two years’ levels. Australian shipments have been falling steadily since they peaked in late June. While volumes out of Australia drop seasonally in July, last week’s exports were the lowest in at least three years for this time of the year.

 

Brazilian shipments also declined last week but remained well above the weekly average so far this year. Last week’s shipments totalled 6.9mt, out of which 6.7mt was attributed to Vale. That compares to the year to date average of 4.7mt per week out of Brazil.

 

Based on the AIS data, Vale is seemingly on track to hit its production target for this year.  The miner’s weekly shipments so far in 2H averaged 6.24mt. While that is marginally below the estimated weekly average of 6.4mt they need to achieve, it is mainly due to the weakness in volumes in early last month.

 

Vale's average weekly shipments recovered steadily since mid-July. In the first half of August, shipments averaged 7.1mt per week. That is well above the 6.4mt average they need to achieve in 2H to hit their target. That said, it is too soon be sure that the current level of shipments can be sustained throughout the rest of the year.

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