WEEKLY E-MAIL

23 September 2021

THE FALLING IRON ORE PRICE

By Rebecca Lowe

After hovering in a narrow price range of US$80-100 per tonne in the months leading up to the COVID pandemic, the iron ore price began to climb higher in May 2020 and peaked at US$233 per tonne on the 12th May 2021. Since then, the iron price has fallen to US$123 per tonne as of 17th September 2021, a fall of almost 47%.

The surge in iron ore prices can be attributed to strong demand, particularly in China. Chinese demand slowed quickly in the first quarter of the 2020 calendar year due to the implications of COVID. Still, the rebound was just as robust, leading to high production rates during the second half of 2020, which continued into 2021 as shown below:

Construction accounts for approximately 60% of Chinese steel demand. The construction-related components of the Chinese economy benefited from loose monetary and stimulatory fiscal policy, resulting in an acceleration of infrastructure, real estate and manufacturing-related activity. However, this demand has tempered in recent months, following infrastructure and property investment policy changes within the country.

Other factors contributing to the fall in iron ore prices include:

• A dramatic slowdown has followed surging steel production in China in the first half of 2021 in the second half of 2021 – production has decreased 18% in July and a further 10% in August. The Chinese government is trying to suppress production throughout the second half of 2021 for environmental reasons, trying to keep production growth flat for 2021.
• Restrictions on steel production in China are expected to continue until at least February next year when Beijing hosts the Winter Olympics. In the lead up to the Olympics, entire industries are expected to be shut down to limit air pollution.
• The Chinese economy is slowing, particularly in the property and infrastructure sectors, where steel demand accounts for up to 30% and 25%, respectively.
• Widespread restrictions to contain China’s latest COVID outbreak.

While China is not the only source of demand for iron ore in steelmaking, the country accounts for as much as 70% of the seaborne trade in iron ore. And while it is likely that subdued demand for iron ore from China in the short term will continue, global demand for steel remains strong as economies recover and strengthen from the impacts of COVID.

Rebecca Lowe
Senior Para-Planner
Authorised Representative No. 453075

If you have any questions or comments, please email me at rebecca@gfmwealth.com.au

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