By Clyde Russell

LAUNCESTON, Australia (Reuters) – Just as iron ore’s surge to a record high in May was an overblown rally, its plunge last week was a disorderly retreat, with neither move fully justified by the fundamentals of supply and demand.

According to Argus, the spot price of iron ore to be delivered to north China has fallen 22.2% since last week and ended at $100.45 a tonne by Sept. 17.

Steel-making ingredients have now dropped 57.4% since May 12, when they reached a record high at $235.55/tonne.

The rally which peaked in May was supported fundamentally, but the current decline has also had solid drivers. However, price movements have been extreme and may be a result of greater speculator interest. This market was traditionally the domain of big players like miners, steel mills and large players.

China bought about two-thirds worldwide seaborne iron ore. It has taken steps to decrease steel production for the second half 2021 to keep full-year production below the previous record of 1.065 billion tonnes.

Due to the rise in power generation fuels like thermal coal, and other factors, authorities are trying to restrict steel production to cut pollution and reduce energy consumption.

After earlier weather disruptions in Australia (top exporter), and the coronavirus epidemics in Brazil (number two shipper), iron ore supplies have been improving in recent months.

But the movements of iron ore in the global flows aren’t as drastic as those in the prices.

China’s first eight months of 2019 saw iron ore imports drop 1.7% from 2020.

In August, imports totalled 97.49 Million Tonnes. It was the most since April. This indicates that supplies are recovering.

Refinitiv data on vessel tracking shows that September will see strong imports. Kpler, a commodity consultant, is even more optimistic with an estimated 116.6 million.

The higher import volumes have not caused stockpiles to build up, as SteelHome monitored port inventories and found that they dropped for another week, to 130.1 million tonnes in the seven-days to September 17.

They are still above the 118.3million tonnes in 2020 for the same week, however, this is consistent with China’s seasonal patterns for port inventories. In China, they increase in the winter and then decrease in the warm season as construction activity increases.

SUPPLY RECOVERS

On the supply side, exports from the top shippers may actually be a bit softer in September, with Kpler estimating Australia will ship 75.22 million tonnes, down from 76.01 million in August and 73.11 million in July.

Brazil will export 29.54 millions tonnes in September. This is down from the 34.39 million it exported in August. It was also the largest in one year.

Kpler predicts that South Africa will be the third largest exporter, exporting 4.9 million tonnes in September. This is down from 5.62million in August. It was also the highest export figure since December.

Overall the market is more evenly balanced than in earlier years, when supplies were disrupted by China and steel production hit monthly records.

Is this a sign that iron ore is priced at around $100 per tonne?

Iron ore will likely spend less time at $100 per tonne than it does above that price, provided there are no supply disruptions and China doesn’t exceed 2020 steel production levels.

For just more than six years, spot iron ore was at $100 per ton for June 2020. This excludes a short three-month span from May 2019 through August 2019, during which the Chinese summer steel market saw its price rise as high as $125/tonne.