Iron Ore Frenzy
(Sat, 22 Aug 2020). For the first time in six years, the price of iron ore surged to as high as $130 due to concerns about the sustainability of mining. Demand for iron ore is surging as governments ramp up mega infrastructure projects.
Rising demand for iron ore has driven up its price to a level unseen since January 2014. Major iron ore producing countries, including Brazil, Russia, and India, were hit hard by the pandemic. As the supply of the commodity begins to rise until the year’s end, analysts anticipate a slump in price. For the first time in six years, the spot price of iron ore surged to as high as $130. Demand for the metal has increased due to concerns about the sustainability of mining.
Since March 2020, major mining regions, including Brazil, struggled to reopen their economies amid the pandemic. Yet demand for the metal has continued to increase due to the rise of infrastructure projects.
Demand for Iron Ore Is Increasing; Supply Lower Than Before
According to Fitch Solutions, the emergence of major infrastructure initiatives, especially in China, drove the demand for iron ore. The world’s largest iron ore mines are based in Brazil, primarily in Carajas. India, Russia, and China have large-scale mines, but the pandemic profoundly affected all four countries. Data from Our World in Data show Brazil recorded 3.46 million cumulative coronavirus cases so far. It has become the second-most infected country behind the U.S.
Other major mining regions, like India and Russia, have seen a substantially high number of cases since April. India now has 2.91 million confirmed cases, while Russia has 946,000. In a report, Fitch Solutions said continued concerns over the supply of iron ore led the commodity’s price to surge. While the supply of iron ore slumped, China has continuously spent more on building infrastructure. China Dialogue, a non-profit organization based in London and Beijing, said China had issued $683 billion debt to fund infrastructure. In 2019, China purchased 1.069 billion tons of iron ore, the second-highest level in history.
Is the Commodity’s Rally Now in Jeopardy?
With iron ore hitting a six-year high, some analysts are turning cautious towards the commodity. CRU’s senior analyst Erik Hedborg said various factors, such as heavy rain and the pandemic, caused delays in shipments. Whether the metal would see a bigger rally throughout the end of 2020 remains uncertain. Countries are pushing to reopen their economies with hopes for vaccines by the year’s end. Until then, strategists still expect there to be various challenges in mining and shipping the commodity.
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