Iron ore market has mixed signals from supply and uncertain demand

RIO DE JANEIRO, BRAZIL – Iron ore’s volatile year faces a new test. The world’s largest mining companies are signaling a complex supply picture amid heightened concern about the strength of Chinese demand.

Vale’s iron ore production was slightly lower than expected last quarter, although volumes grew from the previous period.

The company also maintained its annual projection. On Tuesday, BHP said it could raise production further in fiscal 2022 after a record year, while Rio Tinto warned of difficulty in meeting demand and signaled that annual shipments may be at the lower end of its forecast.

The divergent supply outlook contributes to an uncertain second half as investors also look to gauge the pace of demand in China, where inventories have been rising and steel production fell in June for the first time since late last year.

The Chinese government’s initiative to reduce emissions from the steel sector may lead the global iron ore market to a surplus in the last quarter, and the oversupply would remain next year, according to Citigroup estimates.

Iron ore consumption will be impacted as steel production cuts gradually intensify, which would help curb the commodity’s rally, according to a report by Huatai Futures.