Perfect Storm To Keep Blowing Into Next Year For Iron Ore Miners

 A perfect storm of reduced supply and rising demand which has driven the price of iron ore to more than $110 a ton is forecast to keep blowing into next year.

 

Despite repeated forecasts that the price of the steel-making material is overdue for a correction the latest reading of the iron ore market is for the price to be higher for longer thanks largely to supply and demand effects of the Covid-19 pandemic.

 

Brazil, one of the world’s biggest iron ore producers, has seen its mining industry buffeted by the public health crisis which has crimped exports while China, the biggest consumer, has lifted imports to meet high demand caused by government economic stimulus to counter the effects of Covid-19.

 

Investors will get a close look at the effects of the iron ore price on two big exporters next week, firstly in the annual profit report of the world’s biggest diversified miner, BHP Group, followed by world’s leading pure-play iron ore stock, Fortescue Metals.

 

J.P. Morgan echoed Citi’s comments forecasting a $100/t average prices for iron ore next year, noting that: “we struggle to see what releases the current pricing tension heading into next year”.

 

“Chinese steel output has accelerated all year, with the rest of the world likely to follow heading into 2021,” J.P. Morgan said.

 

“We also believe there is significant risk remaining over Brazilian volumes given the catastrophic rise in Covid-19.”

 

In what is the most bullish view of the iron ore outlook J.P. Morgan also raised concern about long-term supply which is seen as being dominated by plans to develop the controversial Simandou mine in the African country of Guinea.

 

“We are starting to think prices could remain well above cost curve support levels until Simandou comes to market, which could be five-to-seven years away,” J.P. Morgan said.