Iron ore price surges as strong demand from China leaves supplies stretched

Iron ore futures jumped on Monday as supplies of the steelmaking raw material stretched on strong demand from Chinese steel producers. Singapore iron ore futures jumped more than 10% to hit a fresh record high of US$226 a tonne on Monday after prices breached US$200 for the first time only last week. Commonwealth Bank of Australia commodities analyst Vivek Dhar said in a Bloomberg interview that “This sector is very, very hot, and just when China’s steel demand impulse will ease is perhaps the biggest question of 2021. “Supply is still not able to meet that strong demand.” Big miners’ shares jump Fortescue Metals (ASX:FMG), BHP Group (ASX:BHP) and Rio Tinto (ASX:RI) saw their share prices surge on Monday following the run-up in the iron ore price. New and emerging iron ore producers such as Fenix Resources Ltd (ASX:FEX) and Fe Limited (ASX:FEL) are also expected to benefit from the red hot demand for the commodity. Tailwinds from stimulus measures According to a Bloomberg report, steel prices have jumped in China as heavy users like the construction and manufacturing sectors enjoy a busy period, as well as enjoying tailwinds from stimulus measures. Steelmakers in the rest of the world such as ArcelorMittal SA are also enjoying a boom cycle as markets bounce back from the COVID-19 pandemic. CBA’s Dhar added: “There is a chance that ex-China demand can come back to such an extent that we still see steel demand pick up globally and that will see iron ore demand remain at these elevated levels.” Strong start as an iron ore producer Fenix Resources recently made a strong start to life as an iron ore producer, with four shipments in the March quarter and ore grades in line with forecasts. The company shipped a total of 220,000 tonnes of iron ore from its Iron Ridge Project in WA at an average price of US$156/tonne during the March quarter with the ramp-up now complete. C1 costs averaged A$93/tonne and are expected to progressively decline to about AS$85/tonne now that the ramp-up is complete. Closer to production at JWD Iron Ore Project Fe Limited is progressing its JWD West Wiluna Iron Ore Project in WA, having begun work to refurbish offices and other infrastructure at the existing exploration camp with the goal to begin early site works by the end of the month. Executive chairman Tony Sage said it was exciting to see all the pieces coming together at the project. He said: “I’m looking forward to seeing works on the ground continuing to ramp up over the coming weeks. “The iron ore market remains strong, particularly for high-grade lump material that we envisage to produce. “We will continue to push hard to finalise the remaining operational contracts so we can join the ranks of iron ore producers.” The company aims to begin shipping iron ore product in the current quarter, alongside an assessment of second-phase mining at the project, which it hopes to begin in the September quarter.