Stilted supply boosts price
HEALTHY COMPETITION South Africa has competition from India, which is increasing its supplies to China.
In the past year, the price of iron-ore has recovered well, mainly on the back of constrained supply in South America and the economic recovery in China, with the latter driving consumption, explains international commodities consultancy Core Consultants MD Lara Smith.
She notes that there is uncertainty about whether Beijing’s efforts to boost the economy in the aftermath of Covid-19 will sustain Brazil coming back on line or whether this will signal a bear market.
“South Africa is the third-largest contributor to seaborne iron-ore supply. China’s stimulus packages are focused on construction, so demand for iron-ore could continue to climb. Further, South Africa is in a fortuitous position because most of its supply is exported to China.”
Smith says that, as iron-ore stocks are still high – 114-million tonnes as of November 12 – the industry can expect to see a strong buying trend from China until February.
“Consider the tailings dam disasters in Brazil and that Brazilian iron-ore has yet to recover fully while China’s productivity numbers are picking up, which are evident in its purchasing managers index,” she says.
She notes that South Africa has competition from India, which is starting to increase supplies to China.
Nevertheless, it is in a strong position to benefit from the upswing, Smith concludes.
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