Iron ore prices back above US$120 after biggest retreat in a year

RIO DE JANEIRO, BRAZIL – Iron ore, one of Brazil’s main exports, surpassed US$120 per ton and accelerated its recovery after hitting its lowest level in more than a year. With the prospect of rising inventories at steel mills ahead of a long holiday in China, investors bet on the commodity again.

Futures for the commodity in Singapore rose as much as 9% on Monday, 27, on expectations of higher inventories after the slowdown in the Chinese summer. Chinese mill profits advanced to the highest level since May, according to a Bloomberg Intelligence gauge.

The news may help the recovery of shares of mining and steel companies. Vale (VALE3), the most extensive stock on the Brazilian stock exchange, has already accumulated losses of 21% in September due to recent ore declines.

“The rise [in ore] was supported by a sudden increase in steel mills’ profit margins, improving prospects for higher mill demand,” Australia & New Zealand Banking wrote in a report. “Mills are also replenishing inventories ahead of the National Day holiday.

That said, there is still uncertainty after Chinese officials asked local governments to prepare for a possible collapse of Evergrande,” it said of the indebted property developer.

Ore prices rose for the fifth day, heading for the most significant period of gains since June, after plummeting to US$90 a ton last week. In recent months, steelmaking input has faced sharp swings as China steps up efforts to limit output below the previous year’s record and thus reduce emissions. China Evergrande’s liquidity crisis and possible contagion from the property market crackdown also add to concerns.

Still, iron ore remains more than US$100 below its peak in May as China’s energy shortages restrict industrial activity and further weigh on demand. Steel mills in Jiangsu province have been instructed to reduce output to cut energy use, Mysteel consultancy Mysteel reported earlier, citing a survey of operators. Some mills in Hunan province also plan to reduce production.

With power rationing accelerating production restrictions, steel mills are managing to meet their target of reducing annual volume below 2020 levels, said Ban Peng, an analyst at Maike Future. That could limit downward pressure on demand for iron ore.

Mills also replenish inventories ahead of the week-long holiday that starts on Friday as stocks are low, Maike’s Ban added. Inventories at China’s ports have fallen for three straight weeks and are at the lowest level in more than a month, according to Mysteel Global data compiled by Bloomberg.

In Singapore, iron ore futures contracts rose as much as 9.4% to US$121.50 a ton and traded at US$121.20 at 3:45 PM local time. Iron ore closed with a 2.7% gain in China, while steel futures advanced more than 1%.

MINING IN BRAZIL

Mining in Brazil is centered on the extraction of iron (the second-largest global iron ore exporter), copper, gold, aluminum (bauxite-one of the five most significant world’s producers), manganese (one of the five biggest world’s producers), tin (one of the most important world’s producers), niobium (concentrates 98% of the known niobium reserves in the world), and nickel.

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