Iron Ore’s Blistering Rally Sets Sights on $200 as Steel Booms

A surge in steel consumption as the world emerges from its pandemic-induced slump is set to drive iron ore to an unprecedented high as the biggest miners struggle to keep up with the frenzied pace of demand.

Expectations are building that benchmark prices can get to $200 a ton -- topping the record $194 hit more than a decade ago -- as Chinese steelmakers ramp up production in defiance of government attempts to rein in output to control the industry’s carbon emissions. That’s tightening an iron ore market that hadn’t fully recovered from a supply shock more than two years ago.

“Iron ore prices could go higher in the short-term and exceeding $200 a ton is definitely possible,” said Kim Christie, a senior analyst at consultancy Wood Mackenzie Ltd. It would only take extra supply concerns, or additional strength in Chinese steel production, for prices to get there, she said.

At the heart of spot iron ore’s 14% climb last month, helping drive the supercharged commodities rally, has been rising steel prices from Asia to North America. Particular focus has been on China, where the economy has boomed and a swath of measures aimed at cleaning up the world’s biggest steel industry pushed mill profitability to the highest in more than a decade.

“What these high margins do is incentivize mills to build up stocks and to charge more high-grade ore to lift productivity,” said Erik Hedborg​, principal analyst at CRU Group. “We have seen a bit of an ‘additional iron ore demand’ for the purpose of increasing inventories.”

Iron ore futures on the Singapore Exchange advanced 0.4% to $186.50 a ton on Wednesday amid muting trading, with China shut for a holiday.

Benchmark 62% spot iron ore was at $187.20 a ton on Friday, while 65% ore was at $223.30. Mills typically turn to material with higher iron content during periods of steel production restrictions as a way to lower emissions. Morgan Stanley has called China’s supply reforms a possible “game changer” for demand for premium ore, with grade differentials unlikely to normalize any time soon.