Supply fear to keep iron ore price pumping with long-term $250/t price for mineral forecast

Iron ore pellets

THE heat in the iron ore market, which has seen the price of the mineral increase to more than $230 per ton, was unlikely to cool – at least for now, according to a commodity trader interviewed by Bloomberg News.

“Logic dictates that these are ridiculous prices but fear will continue to keep the scramble going,” Andrew Glass, Singapore-based founder of Avatar Commodities told the newswire in a May 12 report.

“There is fear of not being able to secure the logistics and the resources you need – $220 is expensive, but it’s much more expensive if you have to shut down a mill because you can’t get material,” said Glass.

According to Oversea-Chinese Banking Corporation, iron ore could increase to as much as $250/t in the next 12 to 18 months. This makes for impressive returns for Australian iron ore producers which can mine and deliver the ore for $30 to $40/t.

Iron ore is “… grossly overpriced at the moment, but fear is an amazing motivator and prices are a reflection of fear,” said Glass who previously traded minerals for Anglo American. “You’re seeing fear more broadly with gold prices up, the dollar down, there is a flight to safety, and there is a certain amount of fear feeding into commodities markets.”

The iron ore sector “is very, very hot,” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, said in a Bloomberg Television interview earlier this week. “Supply is still not able to meet that strong demand.”

The iron-ore boom comes as China’s steelmakers keep output rates above one billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply, said Bloomberg News.