Iron Ore Price Update: Recovery Stalls on Trade War Fears

After rallying in six of the last seven sessions, iron ore’s recovery began to stall yesterday. This occurred after the US arrested the CFO of Huawei in Canada, signalling that the trade war could escalate further.

The implications of this possibility were reflected in price movements across the various grades.

As Business Insider reported:

The spot price for benchmark 62% fines slipped 1.2% to $66.59 a tonne…after outperforming in recent days, high-flying 58% fines succumbed to profit-taking, slumping 2.1% to settle $42.45 a tonne. The price for 65% Brazilian fines also softened, sliding 0.8% to $82.70 a tonne.

Check out our list (with analysis) of the 10 best mining stocks on the ASX.

Arrest of CFO hurts iron ore price

Sabrina Meng Wanzhou, Huawei’s CFO, was detained in Canada for allegedly violating US sanctions on Iran.

With limited details about the arrest made available, there was a broad sell-off in Chinese financial markets.

Investors are now worried that the tension between the US and China could worsen, just days after a trade ‘truce’ was announced.

Under the handshake agreement at the G20 meeting in Buenos Aires, US President Donald Trump and Chinese President Xi Jinping announced that they would hold off on imposing additional tariffs for 90 days starting on 1 December.

According to research by the Center for Strategic and International Studies, it is estimated that cyberespionage by China has cost the US a total of $600 billion over the last two decades or more.

That is a mammoth figure, and puts the trade war in context.

It also calls into question the justifications for a dovish position on the trade war. The US has legitimate grievances against China it seems.

Goldman Sachs iron ore price forecast largely similar

Largely in line with Markets & Money’s iron ore price forecast, Goldman Sachs sees iron ore getting a bounce in the coming months.

According to commodity analysts at the firm:

We forecast $70 a tonne over the three-month horizon as restocking needs after the winter cuts and seasonally weak supply support iron ore prices in the first quarter of 2019 before eventually falling.

Our three, six and 12-month forecasts are $70, $60, and $60 a tonne.

Of course, there is the prospect of Chinese stimulus being added to the mix, something Markets & Money covered recently.

This could add much needed support to the price in the three to six month range.

Regards,

Lachlann Tierney,

For Markets & Money

PS: Interested in the mining sector? Get the names of the 10 hottest mining stocks in our report. It’s available for free here.

 


Lachlann Tierney is a writer for Markets & Money. He has lived and studied in the US, the UK, and Australia. With an MSc from London School of Economics (LSE) he brings a strong grasp of geopolitics and world affairs to his analysis. Lachlann is always on the lookout for the news that will give you an edge in tomorrow’s markets.


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