Iron ore prices are vulnerable to lower Chinese growth

Significance

The steelmaking ingredient was barely affected by the pandemic in March-April 2020 and gained 72% over the year. The main suppliers stepped up production and China-bound shipments rose to record levels. Underscoring the commodity’s dependence on demand by China’s steel producers, the slowdown in other economies has not affected the market.

Impacts

• Crucially, iron ore appears to be excluded from a raft of curbs on imported Australian commodities adopted by Beijing.
• Australia’s Fortescue, the world’s fourth-largest producer, will raise capacity at Port Hedland by 25% to 220 million tonnes per year.
• Prices of iron ore futures in China tend to gain in response to positive vaccine news in the West, supporting the market.
• China's draft plan for the steel sector to 2025 shows it is considering building two or more "globally significant overseas iron ore mines".
• The renminbi rose by more than 6% versus the US dollar in 2020, making iron ore more affordable for China; this is likely to continue.