At the end of last year, due to the acceleration of economic recovery around the world, the steel industry resumed production, promoting the rapid growth of iron ore demand, prices are also rising, once a "crazy stone"; The iron ore rally continued into 2021, even reaching an all-time high in May.
However, after hitting a high, iron ore began to fall as the world's largest importer kept buying. Only recently it was dubbed the "worst commodity of 2021" after prices fell faster than expected.
On September 17, it was reported that the main October contract of Singapore iron ore futures fell below $100 / ton, down more than 7% on the day, hitting the lowest level since July 2020, that is, in 14 months. In addition, iron ore has fallen more than 22% this week, its worst weekly performance ever. The market marveled: iron ore had fallen faster than expected.
It's the 'worst commodity of 2021' because other commodities are on the rise, some hitting new highs. For example, natural gas, recently known as the "king of price rises", has hit a 10-year high in the US, increased six-fold in Asia in one year, and increased ten-fold in Europe in 14 months. With the onset of winter in the northern hemisphere, markets are saying gas is "just starting to kick in."
So how did iron ore go from "crazy rock" to "worst commodity"? On the supply side, several major mining companies, spurred by high prices in the first half of the year, have chosen to increase production, making the market gradually oversupplied. For the second quarter, BHP's production was up 9% from the previous quarter and Vale's was up 11%.
From the demand side, in order to achieve carbon neutrality, China, the world's largest importer of iron ore, began to optimize the layout of its steel industry since mid-June this year, and began to plan and deploy the reduction of crude steel output in many places. Tangshan, for example, has already said it will cut crude steel output by 12.37m tonnes this year, weakening demand for iron ore.
When iron ore prices were high, the mining companies made a lot of money, and now the iron ore price is falling, they will be affected. According to market news, the three mining companies collectively fell on September 17 -- BHP fell 4.87%, Vale fell 4.61% and Rio Tinto fell 4.22%, each down more than 4%
Not only the big three miners, but Also Australia, which makes a lot of money from iron ore exports, will be affected. It should be noted that China has been the largest buyer of Australian iron ore for many years, and iron ore trade also plays a very important role in sino-Australian trade. In the first half of this year, Australia's exports to China rose five times in a row despite a decline in exports due to high iron ore prices.
"In the first seven months of this year, iron ore exports accounted for more than 40 percent of Australia's export revenue, comparable to Australia's trump card." But according to market analysis, every $10 drop in iron ore costs Australia a $3 billion to A $3.5 billion in revenue, so the country's "good times" in iron ore sales may come to an end in the second half of the year.
In addition, other Australian economic data are not optimistic, such as the Australian dollar exchange rate is at the low point of the year, the continuous decline of the Australian dollar is aggravating inflation and so on.
