The latest prices and key trends from the SM Commodities Index.
Iron ore prices have shot up another 8% to $92.6 a tonne (CFR China) in April, following the return to the market of Chinese steel makers, according to IHS Markit. But more significantly, the impact of cyclone Veronica in March on the Western Australian iron ore operations has compounded supply issues created by miner Vale’s dam disaster in Brazil in January.
Initial estimates put supply losses from the cyclone at around 20 million metric tonnes (MMt), which will deepen the deficit created by the Vale dam breach, which killed hundreds. Since last month Vale has issued 2018 quarter four results, along with an indication that 92.8 MMt of annual production capacity, or 5% of seaborne market supply, has been disrupted and is currently out of production.
The most recent shock to the market has tested the resolve of Chinese buyers, but tight steel margins have again prevented any blow up in price above $100 a tonne, due to tepid steel demand in China. However, recent macro-data releases indicate Chinese demand is improving again after winter, as steel production restrictions in 28 cities were removed last week.
We continue to forecast prices to trend lower in 2019, pending further shocks to the market. Iron ore prices will ease lower on the news of the restart at Vale’s Brucutu iron ore mine, which has an annual capacity of 30MMt. However, returning steel demand in China will increase demand, limiting the downside price potential.
Crude oil prices increased 7.7% from March to April due to a multitude of factors that tightened supply, including forced production cuts, trade sanctions, and geopolitical turmoil. The Vienna Alliance, including OPEC, Russia, and a few other oil producers, continued to keep a lid on production in April in order to lift prices. Additionally the US followed through with sanctions meant to drive Iranian oil exports to zero. Turmoil in Venezuela increased uncertainty about future exports and contributed to the continuation of declining production.
Click on the image to enlarge