CHRONIC SUPPLY CRUNCH = BOOM TIME FOR IRON ORE JUNIORS
While other commodities have taken a hit thanks to COVID-19, iron ore has been remarkably resilient thanks to several factors that led to declining supply prior to the pandemic.
And with demand again starting to ramp up and supply substantially diminished, those mines already on the road to production have a clear advantage.
And while iron ore prices are now more than double what they were at the bottom, supply has continued to be cut from the market following events like the most recent tailings dam failure in Brazil, cyclones in Western Australia and mines reaching the end of their lives.
But that is just the icing on the cake for iron ore prices.
In actual fact, the majors have been seeing their production capacity decline for some time. Vale has even lost its spot as the world’s largest iron ore miner, being overtaken by Rio – which also isn’t even producing at full capacity.
“A lot of people have said the recent iron ore spike was to do with Vale’s tailings dam problems and the Brumadinho tailings dam collapse,” Mark Eames, director of Magnetite Mines (ASX:MGT), said.
“That’s certainly the trigger or the catalyst, but the underlying problem that I think a lot of observers have missed is fundamentally there’s very little additional capacity being built, and Chinese steel demand has grown dramatically.”
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