Commentary on Political Economy

Tuesday 9 March 2021


Iron ore market deficit under threat

William McInnes

The iron ore market deficit that has kept prices close to their highest levels in almost a decade and driven the major iron ore miners to record highs could be under threat from new environmental restrictions in China.

Iron ore spot prices tumbled 5.7 per cent to $US164.41 a tonne on Tuesday, the lowest level in a month and heaviest single-day fall since December 22, according to Fastmarkets MB spot market pricing for 62 per cent quality ore.

NAB head of commodity research Lachlan Shaw. James Alcock

“The large falls in iron ore prices reflect demand concerns, as Tangshan City ordered steel mills to halt iron ore sintering and steel making due to the first red-level pollution warnings since 2017,” said NAB head of commodities research Lachlan Shaw.

“Lower-than-expected growth targets for 2021, coupled with moves to rein in fiscal and monetary policy support in China this year, and softer than expected steel demand post-Lunar New Year, all weighed on the bid.”

The major iron ore miners were hit hard by the price fall, leading the losses on the local sharemarket on Wednesday.

BHP Group dropped 2.8 per cent to $47.60, while Fortescue Metals Group plummeted 8.3 per cent to $20.33 and Rio Tinto tumbled 5.5 per cent to $114.49.

It was also an ill-timed debut for African iron ore explorer Genmin, which fell 13.2 per cent to 29.5¢ on its first day trading on the ASX.

They could extend into the second half of March unless the pollution improves.

— Lachlan Shaw, NAB head of commodity research, speculating on the extent of the disruption

Under the emergency response from the city of Tangshan, “mining, coal preparation, ports, logistics and other operations that involve the transportation of bulk raw materials and products are prohibited from using heavy trucks at or below the fourth national level [of emissions],” according to a notice issued by Tangshan cited by S&P Global Platts.

The limits make it almost impossible to deliver raw materials from Tangshan ports, cutting off distribution for iron ore.

Tangshan is an important heavy industrial city in North China, and the largest steel-producing city in China.

It’s also among China’s most polluted cities and is subject to production restrictions imposed by the smog-prone city’s environment regulator to control emissions.

The city had ordered mills to curb production in late February, when output at steel mills and coking plants was limited, while production at hot rolled and cold rolled producers was suspended completely.

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