De-commoditization of iron ore - now what?


Biswajit Chanda, Change Management and Mining Project Development

This presentation elaborates on the remarkable transformation of the iron ore market from being a monotonous and unglamorous business for decades to a most sought after commodity in the Chinese futures market courted by speculators, confounding the forecasters from international banks. The saga started around 2010 when the traditional price setting mechanism broke apart under the pressure from an insatiable demand for the iron ore in China. After peaking in 2011 at a price around US$ 180.00 for the benchmark grade of 62% Fe, the prices started a relentless descend to under $40 in December, 2015. The majority of Analysts saw iron ore stagnating around $40 range amid falling steel demand in a vast oversupplied market. Then, an incredible trend emerged. The Chinese commodity traders and speculators correctly sensed that the Government’s policies, such as the strengthening of steelmakers’ profits, stricter environmental controls and a continued stimulus spending, not the traditional supply-demand analysis would influence iron ore prices. As a result, iron ore spot prices started to climb finding a support level between $60-80 for the benchmark grade with rising premiums for 65% Fe and deeper discounts for 58% Fe grades due to an emerging de-commoditization trend. Now, Analysts are again predicting a weakening of the prices from 2020. The author argues that the host of unpredictable factors, such as a need for continuous stimulus spending and Government’s geo-political ambition to expand “one belt one road” initiatives on the one hand and on the other hand the pressure to curb risky financial behaviors and effects of the trade war with the US, would have bearings on the prices. The presentation will review the significances of several opposing factors shaping future prices and comment on potential opportunities for Labrador Trough developers in this uncertain times.
Keywords: iron ore, price forecast, Chinese market, chinese steel demand,potential opportunities for Labrador Trough projects.