Rains across Southern Brazil in the past week signal that the dry season is coming to an end. With plenty more rain in the forecast for key iron ore mining states we can expect export levels to taper off over the rest of the year following the usual seasonality.
Absent of another spike in congestion, it is likely that iron ore utilisation of Capesize vessels has reached its annual peak. However, stubbornly high levels of congestion will mean this utilisation rate may remain higher than normal over the coming months.
Since the lows of September, SGX iron ore futures have rallied 43% up to $129/mt. Concerns about marginal seaborne supply being taken out by iron ore's bear market have abated for now. However, reports are suggesting that power rationing is hitting China's domestic mining and concentrating facilities, which explains why Chinese iron ore output has been falling quite significantly since it peaked in June. Whilst iron ore demand has fallen in China, this reduction in domestic supply is helping to balance the market and provides support to imports.
With Brazilian iron ore supply set to decline over the coming months, the Capesize spot market will likely also ease as the pressure comes off. However, with the energy crisis shutting down Chinese steel production, it is iron ore demand where the real action is happening. In a follow-up report later this week we will discuss the demand side of the equation.
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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