For some time now, iron ore stocks have done absolutely nothing. In the last six months, they’ve pretty much gone sideways, along with the iron ore price.
Here’s a chart to show you exactly what’s been going on:
The bottom line is this: iron ore doesn’t really move that much from day to day. And it doesn’t really get much media attention these days, either.
That said, however, the big iron ore stocks have started falling in recent weeks.
Why is iron ore so Volatile?
Firstly, I should clear this up — just because the price rarely fluctuates, it doesn’t necessarily mean there’s anything bad happening with the commodity.
But it’s also worth noting the big companies probably won’t start to perform better than the wider market unless or until the iron ore price heads up.
Base metals have been harshly hit by Donald Trump’s recent tariff tiffs — creating fear of economic disturbance and for the future of international trade, subsequently hitting demand and market expectations for China.
China is still the key driver for demand, and the market has been swept up in a sea of economic uncertainty in the last six months.
However, despite their prickly relationship with the US, China’s biggest physical iron ore trading platform in the Nantong, Jiangsu province is looking to hit record volume levels this year — with increasing demand for raw steelmaking material despite pollution-linked disputes.
Their iron ore imports have only dropped 0.5% to 710 million tonnes from January to August 2018.
Domestically, the volumes traded on the Beijing Iron Ore Trading Center Index (COREX) from January to mid-September this year have risen by 20%, compared with last year’s results.
This would mean a new annual high for the platform — where shipments from top iron ore suppliers BHP Billiton, Vale and Rio Tinto are sold.
‘We think production of steel will remain stable, so demand for iron ore will remain stable,’ company president You Song said to Reuters.
But the international trade conflicts don’t seem to be resolving anytime soon. Last week, Donald Trump announced he will impose 10% tariffs on US$200 billion worth of Chinese imports. The collection of tariffs is set to begin this week, but the rate is set to rise to 25% by the end of the year.
If China decides to retaliate against Trump’s decision, then another US$267 billion worth of Chinese goods will be slapped with that 25% impost.
That being said, things may be evening out for the base metal industry this week.
The commodity hit a six-month high on Tuesday last week, closing at its highest level since mid-March this year.
The sharp gain might suggest that Chinese policymakers are looking to support the domestic economy following an escalation in trade tensions with the United States.
Data taken from China’s National Bureau of Statistics show that domestic iron ore production fell to the lowest level since February 2010 in August — which may have also provided this support.
Fortescue Metals Group Ltd [ASX:FMG] have already profited from the rise — showing a 13% change over the last week after it previously suffered from the price slump.
Similarly, BHP Billiton Ltd’s [ASX:BHP] share price has recently bounced amid the drama. Being a blue chip company, BHP tends to move with the rest of the market.
What Next for Iron Ore?
Well, the stagnation in these markets isn’t necessarily all bad news.
Once conflict is resolved between the US and China, investors may again flock towards buying this metal, and the companies that mine it.
Until then, though, there’s a strong chance that iron ore will continue to decline, along with its base metal cousins, as the wider economic picture slows in China.
PS: 2018 Mining Boom: Could these 10 cheap, top-quality Aussie mining stocks lead this year’s commodities comeback? Find out here.