Iron ore price eclipses $US230/tonne

The price of 62 cent iron ore fines imported to the CFR Qindao Port in China reached the new record on Monday, marking an increase of 8.62 per cent from the previous trading day.

On Tuesday, the price dipped slightly to $US228.93 per tonne – still significantly higher than the previous record of $US201.88 per tonne on 6 May.

According to banking group UBS, tensions between China and Australia will cause a reduction in Chinese investment for Australia’s natural resource projects.

This follows China’s suspension of mutual relations with Australia on 6 May.

“Near-term, we do not expect the bilateral tension to have a major impact on the iron ore trade as there is no immediate source of iron ore units to replace Australia,” UBS stated.

“Medium-term, we expect China to invest less in Australian natural resource projects and to accelerate its objective to reduce dependence on non-captive imported iron ore.”

UBS stated China will instead acquire overseas iron ore assets, transition from pig iron to scrap-based steel production, expand Chinese iron ore production, and cut steel production to decrease iron ore demand.

61 per cent of China’s iron ore was imported from Australia in 2020, UBS found.

CRU Group principal analyst for steel, Erik Hedborg said reduced production in Tangshan, China had driven up prices.

This was due to China’s emissions crackdown in Tangshan.

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise,” Hedborg said.

“Iron ore producers are enjoying exceptionally high margins as well, around two thirds of seaborne supply only require prices of $US50 per dry metric tonne to break even.”