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Russia and Ukraine churn out around 107 million tonnes and 77 million tonnes of iron ore respectively, annually, and between them account for 8% of global production.

Meanwhile, the two countries account for 4% of seaborne supplies

“The contribution of Russia and Ukraine to the global market is relatively small compared to that of the two largest producers, Australia and Brazil. Yet, this does not mean that iron ore is immune to any disruption,” said BofA.

“Indeed, moving into 2022, our base case assumption was for only a 5 million tonnes surplus, so, in essence, a more or less balanced market. With some supply losses increasingly likely, iron ore may be in deficit also this year.”

Price volatility, rally
Iron ore prices have been volatile, falling by 57% in autumn last year, before rallying 70% between November and February.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $157.20 a tonne on Thursday, down 1% compared to Wednesday’s closing.

According to BofA, market sentiment at Chinese steel mills has improved and production has rebounded as the government has dialed back carbon ambitions for the sector.

Meanwhile, inventories at ports have been a contentious issue, with China’s authorities implying that recent stock increases have contributed to rising iron ore prices.

“Stocks had exceeded pre-pandemic levels, but are now starting to normalize, suggesting more tonnes
are being made available,” said BofA analysts.

“Iron ore exports from Australia and Brazil are increasing; yet, these additions are not sufficient, even before any losses from Ukraine/ Russia and a 6% decline of steel production in China, to push the market into a decisive surplus.”

Putting it all together, BofA analysis suggests that iron ore prices at $150 a tonne are justifiable at present.