AMERICA
Iron ore prices are down but is demand recovery around the corner Iron ore prices have slumped on concerns over the effect of the Coronavirus outbreak and the consequences for China's economy.The benchmark S&P Global Platts 62 percent iron ore price dropped about $US10 since the Chinese New Year vacation to hit US83.05 ($123.29) per dry metric tonne.
W
hile the fall had been largely expected since trading resumed last week, it, however, raised concerns about how it would affect the Australian economy, especially Western Australia's, which might receive a big hit to its iron ore earnings. Head of insight & metals news, Asia-Pacific for S&P Global Platts, Paul Bartholomew told Stockhead that the price drop was because of a combination of the lack of trading activity and the negative view around the coronavirus. He noted that while logistics issues had been worth watching, they seemed to have improved this week. "Some of the truck transport is pretty sparse at the moment because either the motorists are still on holiday or quarantined," he said. "There were also bans on collecting cargoes and supplies from the ports, though we know some of that has been loosened now." China had imposed restrictions on the movement of people and goods in the wake of the Coronavirus outbreak and had also extended the holiday period until February 10. Measures adopted to contain
the virus spread could also slow down the loading and discharge rate of raw materials. "We are not expecting demand pickup until probably end of March, as it typically requires some weeks after the New Year to return to normal operating rates, and obviously with the happenings going around the Coronavirus, that is going to push it back possibly a month," Bartholomew explained. DEMAND RECOVERY
"There will be a lot of pent-up demand, and then you will see mills flying into restocking and actions. "We hope to see the Chinese authorities put a bit of stimulus into the economy, a lot of that will find its way into infrastructure and property construction and other types of fixed asset investment." China may ramp up its stimulation programs to counter the effect of the coronavirus and possibly meet any targets for the final year of its 13th five-year plan.
Although, it isn't all doom and gloom. The timing of the Coronavirus outbreak occurring during the Chinese New Year may work out better than if it had occurred at any other time of the year. "I think the major thing is that this is happening during a seasonally slow time of the year," Bartholomew clarified.
"It takes some time to generate demand with these projects. It does not happen overnight; there's always going to be a lag time," Bartholomew added. Over the past month, the iron ore players at the junior end of the market have not fared so well, as their share prices dropped between 4 percent and 25 percent of their value.
"He further explained that some of the disadvantages are going to be absorbed by the fact that February is always a quiet month." He added that if things didn't worsen, activities could begin picking up from the end of February to March. "When the recovery happens, it will be quite swift, and there will be a big pickup," he said.
The most recent iron ore entrant to the ASX, Macarthur Minerals (ASX: MIO), was down 4 percent. The company is exploring for iron ore at its Lake Giles project near Kalgoorlie in Western Australia. Legacy Iron Ore witnessed the most significant fall, which operates the Mt Bevan iron ore joint venture in the Yilgarn area of WA.
12 | SKILLINGS MINING REVIEW March 2020
