June 11, 2015
The price of iron ore has rebounded strongly to reach a five month high despite weakening demand from China. The benchmark 62% Fe import price has this week traded above US$65 a tonne, its highest level since January. The benchmark price has recovered almost 50% from the 10-year low of around US$44 seen in April this year.
The significant fall in price from US$190 a tonne in February 2011 has forced the closure of several Chinese producers, as production no longer remains economic. Similar outcomes are being felt by smaller producers worldwide as BHP, RIO and Vale utilise their competitive cost advantage and scale to continue to increase production.
While the iron ore price has rallied strongly over the last two months, China which consumes 70% of the seaborne iron trade continues to report a slowing in activity, with iron ore import numbers for May down 8.4% compared to a year earlier. The adjustments taking place in the iron ore market will continue to cause uncertainty, but with Chinese steel consumption contracting and global growth forecasts being trimmed, most industry analysts believe the current rally may not be sustained.
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