- In the year 2020 to date in late August, the Fastmarkets 62% Fe iron ore benchmark has powered along and reached six-year highs, supported by Chinese demand, and despite the global economic uncertainty created by the Covid-19 pandemic. Iron ore demand has weakened almost everywhere except in China, where it has continued to grow on a year-on-year basis. Although we expect a downward correction in iron ore prices in the second half of the year, it has been difficult for prices to drop by any significant amount so far. Strong steel production in China continues to support iron ore demand and keep prices elevated, along with the challenges to seaborne supply from Brazil. Blast furnace utilization rates in China have been stable at more than 95% for the past month, showing that there is support for current prices, but there is also limited room for further output growth or any price upswings.
- Although the reduced availability of cargoes from Brazil has played a role in tightening the seaborne supply and driving prices upward, Chinese buyers have in any case sought cargoes elsewhere to meet their demand. China more than made up for the loss in imports from Brazil by increasing imports from Australia and the rest of the world in the first half of the year. Since demand from other regions such as Europe and Japan decreased on the effects of Covid-19, sellers were eager to step in and increase shipments to China.
- Unlike iron ore, the coking coal market is far less reliant on China. Other import markets - such as Japan, India and the EU, as well as Brazil, among others - play a significant role for metallurgical coal exports from Australia and the United States. Seaborne coking coal prices continue to weaken across the product range, but we expect this decline to cease with demand outside of China recovering gradually. Moreover, widening coke margins in the Chinese domestic market will probably provide some upside to seaborne coking coal prices. And the relatively elevated domestic coal prices in China, compared with seaborne material, should also help to prevent seaborne prices from falling much further.
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