Global iron ore prices to rise 11% on supply disruptions, China stimulus

International iron ore prices are forecast to rise 11.4 per cent in calendar 2019, buoyed by supply disruptions from key mines in Brazil and Australia and China's fiscal stimulus seen as strengthening steel consumption.

The prognosis is subject to downside risks, especially renewed tightening of environmental policies in China that would restrict steel production.

As per a recent World Bank report on Commodities, iron ore prices registered a sharp increase of 16.2 per cent in Janu­a­ry-March of 2019, primarily because of supply disruptions in 

Brazil and Australia. Following the Brumadinho dam rupture, all of Vale’s upstream tailings dams in Brazil have been decommis­sioned and operations at several mines have been temporarily suspended.

In Australia, BHP and Rio Tinto’s production were impacted by tropical cyclone Veronica, and ore shipments have been disrupted due to a fire at the latter’s export terminal. These supply disruptions amount to about six per cent of the global iron ore seaborne market.

China's latest fiscal stimulus is also expected to prop up iron ore demand and hence support prices. China will sway iron ore prices since it accounts for a half of the world's steel and three-fifths of the world's iron ore consumption.

Benchmark prices of 62 per cent Fe grade iron ore rose to $94.53 per tonne (as on April 23), consolidating on strong gains in a previous trading session. Higher grade ore (65 per cent fines) inched up 0.3 per cent to settle at $108.10 a tonne, moving closer to the recent peak of $109.70 a tonne struck earlier in the month.

Iron ore prices have rebounded, drawing support from Chinese steel futures. 

The forecast for Indian iron ore prices, though, remains subdued,  a previous report by Edelweiss Research suggested. There has been a marked dichotomy in international and domestic prices of iron ore, driven by surge in production by Odisha's merchant miners and lukewarm pellet prices as China's steel makers have shown appetite for lower grade ore.

“Going ahead, we expect domestic iron ore prices to remain under pressure, which will primarily benefit non-integrated steel players such as JSPL and JSW Steel. In NMDC’s case, notified prices could remain under pressure, though e-auction premium in Karnataka and exports realization are expected to remain robust in the wake of international prices remaining high”, the report by Edelweiss added.