Iron ore price rally continues as China’s stockpiles start to ease

Iron ore prices extended their recent rebound as China’s inventories continue to drop, possibly a sign that a period of severe oversupply is starting to ease, although iron ore is still down nearly 30% YTD.

Stockpiles held at Chinese ports have now fallen for the last four weeks, according to data released late Friday, after ballooning to more than 150M tons in late July.

Production at blast furnaces “has shown signs of bottoming out recently,” but iron ore inventories remain relatively high, Huatai Futures Co. said, according to Bloomberg.

Singapore iron ore futures (SCO:COM) recently were +4.2% to $100.20/ton, following last week’s 4.5% increase.

Iron ore prices previously had dropped to two-year lows, as China’s beleaguered property sector depressed steel prices; high-cost production starts to become unprofitable below $100/ton, according to Argus data.

Hu Wangming, chairman of Baowu Steel, the world’s largest steel producer, recently warned that the industry was in a crisis “longer, colder and more difficult” than previous market downturns of 2008 and 2015.

Weaker iron ore prices have cumulatively wiped out $100B in market cap from the world’s big four iron ore producers – BHP (NYSE:BHP), Rio Tinto (RIO), Vale (VALE) and Fortescue (OTCQX:FSUMF) – but analysts say the top global miners probably will be disciplined to prevent iron ore prices from collapsing too far.

“Iron ore is such a well structured industry,” Bernstein analyst Bob Brackett told Financial Times. “The big global miners control their own supply chains. In the same way OPEC won’t flood the market [for oil], they will simply slow down a bit if the market doesn’t want their tons.”