On Friday iron ore prices from mid to lower grades surged, recording their biggest inter-day percentage gain in over a year. But the same could not be said for lower grades, which saw a slight dip.
Metal Bulletin recorded the spot price for benchmark 62% fines, up 4.6% to $70.74 a tonne — a three-week high.
All this occurred on the back of a slowing production in Chinese steel. But according to Business Insider Australia, a strengthening in urban fixed asset investment is also supporting steel prices.
So coming into 2019, there is no better time to start preparing your 2019 commodity stocks. In the past, investors have enjoyed great results from iron ore stocks. But you shouldn’t stop there.
That’s why Markets & Money analyst Jason Stevenson believes your best bet in 2019 may come from smaller, more speculative stocks — read more about it here for free.
Environmental curbs causing iron ore prices diverge
Chinese steel producers offered some explanation as to why iron prices are diverging across grades. On news that two major steel producing centres will introduce harsher industrial output standards in the reminder of the year.
Regulators in Tangshan and Xuzhou requested — after rising steel futures — that mills reign in output over concerns they will fall short of the pollution reduction target, as reported by Reuters.
‘The city government in Tangshan, which accounts for about 10% of China’s total steel output, ordered mills to comply with cuts mandated under a so-called first-level smog alert, according to a notice sent to officials on Tuesday,’ Reuters said.
‘The directive means production should be cut by 40% from the current second-level alert with cuts of only 30%.’ Reuters added.
Another sector investors should be mindful of is other steel futures such as crude steel.
Data from China’s National Bureau of Statistics (NBS) showed that Chinese crude steel output slowed in November which most likely helped bring up steel prices on Friday.
The decline in production is being driven somewhat by environmental controls, as well as falling steel mill profitability, showing that there’s less appeal for mills to sustain previous output levels.
Despite this, total production is still up 10.8% compared to last year. While November saw total production hit its lowest in seven months at 77.62 million tonnes.
2019 slow growth forecast for iron ore price
Leading to 2019, a minor boost in Chinese fixed asset investment gave confidence towards a stronger demand in the future.
In the Dalian exchange iron ore rose by 1.7% and continued into Friday night’s session.
According to The Australian Financial Review, the mid-year budget update about iron ore is unchanged at US$55 a tonne. The update, based on current forecasts, projected:
‘Stronger-than-assumed outcomes for non-rural commodity prices have contributed to a 1 percentage point upgrade to forecast growth in nominal GDP in 2018-19. The metallurgical coal price is still assumed to decline from current levels, though later than assumed at budget. This contributes to slower forecast growth in nominal GDP in 2019-20.’
More to come.
For Markets & Money
PS: Aussie investors have seen great results from iron ore investments in the past. But Markets & Money resources analyst Jason Stevenson believes that your best opportunities lie in smaller, more speculative stocks that aren’t restricted to iron ore. The kind that could see massive share price moves from a single positive drill-hole result. For 10 of his favourite mining stocks on the Aussie market this year, download his free report ‘Top 10 Mining Stocks 2019’ today.