Iron ore futures soared on Monday on supply-side concerns as major producer Brazil becomes a global hotspot for coronavirus.
The country has now close to a quarter of a million cases, the four largest total case count, and a death of over 16,000. According to shipping activity models by Westpac, supply from Brazil has fallen to the lowest level seen since the tailing dam collapse in 2019. “COVID-19’s outbreak in Brazil is threatening to disrupt iron ore exports even further. The virus is taking hold in the Brazilian state of Para, which produces around 35 per cent of the country’s iron ore,” said ANZ chief economist David Plank.
This came as China’s port stockpiles have declined to the lowest in more than three years as steel production has surged, and economic and industrial activity is recovering. According to data from Mysteel, Brazilian ores inventory at 45 Chinese ports were down by 2.7 million tonnes w.o.w to 22.59 million tonnes as of last Friday.
“Steel prices are marching ahead at strong levels in a high-inventory, high-production environment,” Hongyuan Futures Co. said in a report. Traders aren’t willing to sell, especially ahead of this week’s National People’s Congress which is being watched by investors for signs of infrastructure-led stimulus. Meanwhile, the China Iron and Steel Association said Monday the country’s imports may rise significantly to meet domestic consumption, while exports are set to drop. Infrastructure investment and sentiment will rebound, and the construction sector will gradually recover, although manufacturing demand will decline, it said.
Futures in Singapore extended gains during the early morning DCE session following strong rallies over the weekend as China cut its reserve requirement ratio (RRR) on Friday, the second time in a month. Jul traded up from 91.15 to 91.5 while Aug was also seen trading between 89.25 and 89.5. After the close, Aug was seen trading 89.3 and 89.35 while Jun traded at 93.7 and later at 93.6.