Is the current iron ore price boom moving closer to the edge and a slide?
The price of Australian 62% Fe ore ended the week at $US110.30 a tonne, up 14 cents on the day and 10% on the week.
In fact, it was the first time in more than five years the price had not only climbed above the $US110 mark but had remained above that level at week’s end.
At the same time, Friday saw the news that China’s monthly crude steel production hit its second monthly all-time in May, jumping from April’s peak.
So all is well? No, the rapid expansion in steel output is at odds with the health of the economy, especially compared with a year ago.
That this happened at the same time China’s industrial production fell again in May to disappointing levels along with weaker than expected figures for investment especially in real estate, suggests there could be a trigger point approaching for iron ore prices.
Chinese analysts saw the price boom is being driven by a supply shortfall (which is not expected to end until well into September thanks to Rio Tinto curtailing tonnages in July and August) and low stocks of ore in China at port and mill-side.
On top of that, while profit margins have been hit by the surge in iron ore prices, Chinese analysts say there are still profits being made which is encouraging the steel mills to maintain production at high levels of capacity utilisation which in turn keeps a lid on production costs and helps margins.
Friday’s closing price of $US110.30 for 62% Fe ore was up sharply (10%) from Thursday the previous week of $US100.60 (there were no prices quoted on Friday because of holidays in parts of Asia).
The price of 58% Fe (Fortescue’s basic product) was $US101.74 a tonne, up 74 cents on Thursday and more than 10% over the week.
That surge last week saw the price of Fortescue shares jump 12.2% over the week to close to $8.80, BHP shares add 6.8% at $40.30 and Rio Tinto shares jump 7.6% to $105.34.
Data from China’s monthly economic report showed crude steel output hit a record high in May with 89.09 million tonnes produced last month, up 5% from 85.03 million tonnes in April and around 10% from the 81.13 million tonnes in May a year ago.
For the five months January to May, China boosted steel production 102% to 404.88 million tonnes of steel.
China imported 83.75 million tonnes of iron ore last month, up 3.7% from April but down 11% from May 2018, according to the country’s General Administration of Customs’ trade data on Monday.
For the first five months of the year, China imported 423.92 million tonnes of iron ore, down 5.2% on the same period in 2018, continuing a trend that dominated iron ore imports in 2018.
