Global iron ore prices crashed for a 4th session in a row this week on Thursday as the restrictions on steelmaking continued to spread into different regions of China.
According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China fell $US107.21 a tonne, down 7.7% from Wednesday’s close and off 17% from last Friday’s close.
The price of 58% Fe Fines delivered to northern China fell 10% on Thursday to be down 22% for the four days of this week, while the price of 65% Fe fines from Brazil shed 13% in value.
The latest falls take the losses so far in September to more than 30% for the benchmark 62% fe Pilbara fines product that BHP, Rio and increasing, Fortescue ship to China and other markets.
The price of 62% Fe fines is now well under the 2020-21 average prices for BHP ($US130.56 for the year and $US158 a tonne for the June half). Fortescue’s average price for the June year was $US135 a tonne and $US168 a tonne for the final quarter, while Rio’s average for the June half (it has a calendar financial year) was $US168 a tonne against $US85 a tonne for the first half of 2020 which was hit by the impact of the lockdowns.
The falls from the start of this month confirm that the big three Australian companies face sharp falls in earnings for the current December half (there is usually a price lag of a quarter, to the falls will not really hit home until the December quarter).
BHP and Fortescue both have annual meetings later this year which will provide an opportunity for updated guidance, as well as production reports for September in October (and for Rio).
The June half and quarter saw iron ore prices hit all-time highs – the price of 62% Fe fines hit $US237 a tonne according to Fastmarkets MB on May 12.
With a three-day national holiday next week for China’s Mid-Autumn Festival, the sell-off might be slowed. Certainly there will not be much active trading until next Wednesday or Thursday.
According to analysts at ANZ Research, Thursday’s index price of $US107.21 was the lowest level since March 2020.
“These constraints are expected to remain through the end of the year as provinces look to hit targets on emission.”
“With China’s plans to limit production to last year’s level, we see output falling by 11% y/y in the second half of 2021,” ANZ analysts again wrote, adding that it may result in loss of 87 million tonnes of iron ore demand.
Moody’s Ratings agrees with that forecast and sees iron-ore prices moving gradually toward their $US70 to $US80 a tonne average levels of 2016 to 2019 from 2022 onwards.
Tight iron-ore supplies will keep prices above their historical norms through 2022 (Vale has cut its 2022 forecast production by 30 million tonnes).
China’s National Bureau of Statistics said this week that 83.24 million tonnes of crude steel were produced last month, down 4.1% from July and well down on output of 94.85 million tonnes in August 2020. It was also down 16% from the all-time high monthly figure of 99.5 million tonnes in May.
That was the lowest monthly output since March 2020, not accounting for January and February data which the NBS combines (because of the variable timing of the Lunar New Year).
In the first eight months of the year, China produced 733.02 million tonnes of crude steel, still up 5.3% from the January-August period in 2020. ANZ sees that production continuing to fall into early 2022 (until after the Beijing Winter Olympics?).
