Iron ore had a carousing 2019 — for all the wrong reasons. A fatal dam collapse in Brazil, followed by a tropical cyclone in Australia and battered production sent prices to their highest level in five years. Early figures from BHP and Rio Tinto show just how much benefit both have reaped. With supply coming back, Chinese mills under pressure and Beijing’s infrastructure investment looking inadequate to keep the music going, prepare for a more sober 2020.
Unfortunately, it’s hard to see how such gravity-defying market levels can hold up. Iron ore futures in Singapore are trading above $90. While that’s below July highs, it’s still well above prices touched even after Vale SA’s Brumadinho disaster and Cyclone Veronica, which struck Western Australia in March.
Demand isn’t quite as rosy. Granted, there were some signs of stabilisation in the world’s biggest steel producer and consumer at the end of last year. China’s industrial output in December beat forecasts to rise 6.9%, the strongest in nine months and a decent showing even if one accounts for work brought forward to compensate for an early Lunar New Year. Steel production hit another record in 2019.
All of that means iron-ore bulls need China to start splurging on infrastructure. Beijing has taken some measures to encourage spending, approving more projects and lowering capital ratio requirements. This is not a return to the bumper stimulus efforts of the past, though, judging by indicators such as fixed-asset investment. Local governments are saddled with plenty of debt, which remains a concern.
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