- Rising demand for iron ore has driven up its price to a level unseen since January 2014.
- Major iron ore producing countries, including Brazil, Russia, and India, were hit hard by the pandemic.
- As the supply of the commodity begins to rise until the year’s end, analysts anticipate a slump in price.
For the first time in six years, the spot price of iron ore surged to as high as $130. Demand for the metal has increased due to concerns about the sustainability of mining.
Since March 2020, major mining regions, including Brazil, struggled to reopen their economies amid the pandemic.
Yet demand for the metal has continued to increase due to the rise of infrastructure projects.
Demand for Iron Ore Is Increasing; Supply Lower Than Before
According to Fitch Solutions, the emergence of major infrastructure initiatives, especially in China, drove the demand for iron ore.
The world’s largest iron ore mines are based in Brazil, primarily in Carajas. India, Russia, and China have large-scale mines, but the pandemic profoundly affected all four countries.
Data from Our World in Data show Brazil recorded 3.46 million cumulative coronavirus cases so far. It has become the second-most infected country behind the U.S.
Other major mining regions, like India and Russia, have seen a substantially high number of cases since April. India now has 2.91 million confirmed cases, while Russia has 946,000.
In a report, Fitch Solutions said continued concerns over the supply of iron ore led the commodity’s price to surge. The report reads:
Continued concerns over Brazil’s iron ore supply, as coronavirus cases and deaths continue to plague the country’s mining regions, have boosted iron ore prices along with strong Chinese demand as steel production has started to heat up with the country’s V-shaped recovery.
While the supply of iron ore slumped, China has continuously spent more on building infrastructure. China Dialogue, a non-profit organization based in London and Beijing, said China had issued $683 billion debt to fund infrastructure.
The researchers at China Dialogue said:
Monthly investment figures show that rebound was mostly driven by industrial output and traditional infrastructure. Investment in fixed assets and infrastructure saw strong growth in both April and May, giving a clear V-shaped recovery.
In 2019, China purchased 1.069 billion tons of iron ore, the second-highest level in history.
Is the Commodity’s Rally Now in Jeopardy?
With iron ore hitting a six-year high, some analysts are turning cautious towards the commodity.
CRU’s senior analyst Erik Hedborg said various factors, such as heavy rain and the pandemic, caused delays in shipments.
Hedborg said in an interview with Reuters that the price of the commodity could drop once these disruptions get resolved:
If the disruptions are solved, we will see iron ore prices quickly go back below $100 per tonne in the next few months.
Whether the metal would see a bigger rally throughout the end of 2020 remains uncertain.
Countries are pushing to reopen their economies with hopes for vaccines by the year’s end. Until then, strategists still expect there to be various challenges in mining and shipping the commodity.