MSI: Iron Ore Market is Flashing Warning Signs

In its August HORIZON Dry Bulk month report, Maritime Strategies International states that against potential optimism from lower interest rates to come, price action in the iron ore market has been flashing warning signs. Prices have dropped about 10% since the start of the month and are now 30% lower than at the start of the year.

With the freight market highly leveraged to iron ore flows (the largest dry bulk commodity), the response by suppliers will be critical. While it is possible that lower prices of iron ore will only result in the scaling back of higher-cost iron ore producers including domestic Chinese ore, the clear indications of stress in the iron ore market are something that the freight market will need to grapple with for some time.

“While steel demand in China has been underwhelming for some time thanks in part to the malaise in domestic property, the market seemed focused on the potential for fresh government support measures,” said Plamen Natzkoff, Associate Director, MSI. “With confidence in a rapid recovery of construction activity now seemingly lost, the apparent oversupply in the market with persistent weakness in China’s steel output and bulging iron ore stockpiles is now reflecting into a sharply lower iron ore price.”