Iron Ore Prices Explained
Iron ore prices rebounded from their two-month low after the People’s Bank of China (PBOC) announced its cut on the reserve requirement ratio to add liquidity to the financial system. This move aims to help the country’s real estate sector. Thus, revitalizing trade and iron ore prices.
Why are iron ore prices fluctuating?
1. Demand Pressure
The Chinese government’s announcement to lower its cut ratio in hopes of reviving its property development sectors fuels the iron ore market revival. Days after the news, buying demand from Chinese steelmakers surged, influencing iron ore prices on the portside market.
Additionally, emerging steel markets from India and Japan contribute to its demand and prices
2. Struggling Supply Chain
Mining accidents, extreme weather, and unexpected machinery maintenance all keep iron ore supply efficiency below its expected production capacity.
The top Australian mining companies which happen to be the number one iron ore producers in the world failed to compensate for Brazil’s low iron ore production.
As a result, with the imbalance of supply and demand in the market, consumers will expect to see iron ore price hikes in the coming years.
3. Iron Ore Grades
Steel mills’ upgrades in iron ore grade preference also influence their general price in the market.
To follow ecological and environmental metal production, steel producers prefer premium-quality ore as it has low emissions and high-market liquidity over medium-grade ores. Thus, suppliers will lower medium-grade and iron ores to increase the selling point in the market.
4. Carbon Neutral Policy
Part of the global sustainable program is to curve carbon emissions for a livable environment.
The mining and steel industries are the top contributors to global warming. Iron ore exporting countries and mining operators are slowly revising their energy and mining operations to fit into the program. Thus, this will play as the game changer in the supply, demand, and price of iron ore.
Which variables impact the price of iron ore?
- Demand Pressure
- Struggling Supply Chain
- Iron Ore Grades
- Carbon Neutral Policy
- Currency Rates
- Environmental Regulations
Where does iron ore come from?
Iron ore deposits come from sedimentary rocks which contain iron oxides such as hematite, taconite, and magnetite.
Additionally, iron ore is mined and extracted in open-pit or underground mining. Extracted iron ore undergoes a series of processes such as crushing, screening, and magnetic separation to remove impurities and concentrate the iron content.
The ancient Romans, Greeks, and Egyptians used iron ore for their weapons and tools in the early 1800 BCE. The Industrial Revolution in the late 18th century paved the way for large-scale iron ore mining and production, specifically in the high-grade iron ore deposits in the Great Lakes region in the U.S.
Presently, the largest iron ore deposit sits in Australia, Brazil, Russia, China, India, and Ukraine making them the top producers in the world.
What is the future price of iron ore?
Iron ore prices move along with the downward or upward demand from China’s steel appetite. The country consumes nearly 70% of the world’s seaborne iron ore (a market trading 1.5 billion metric tons per year).
And with the country’s new approach to reviving its ailing real estate sector, it signals tailwinds to iron ore commodity in 2024. However, the Chinese energy sector’s goal to go carbon-neutral by 2060 will likely change its marketability in the coming years. Thus, a foreseen price drop of $70 by 2030 is possible.
This rough estimate comes from the present economic performance and plans for a green environment. Note that this price transition will highly change over time.