Overview:

• Metallurgical coal prices have spiked following supply disruptions in Queensland following Tropical Cyclone Debbie. Rail infrastructure will gradually return to normal after 26 April – bringing spot prices back to levels around US$150 a tonne.
• Spot prices for iron ore have exhibited considerable volatility in recent months – having risen strongly between October 2016 and February 2017 (rising from around US$55 a tonne to around US$96 a tonne for benchmark 62% ore) before retreating sharply. At the time of writing, spot prices were around US$65 a tonne – around a third lower in the space of two months.
• We argue that two different factors contributed to these trends. The initial rising trend in spot prices was driven by the shift in Chinese consumer preference for higher grade ore. In contrast, we suggest that speculative pressure has driven the sharp retreat.
• Market fundamentals don’t appear supportive of a rebound in spot prices, given strong iron ore supply that has driven Chinese stockpiles to record levels, while demand is expected to soften, as Chinese construction activity begins to wane.
• The rapid decline in spot iron ore prices – and limited upside potential on ample supplies and a weak demand outlook – means that we have revised our forecasts lower, with a flatter profile trending around US$60 a tonne across the second half of 2017 and 2018.

For further information please refer to the attached document:

• Bulk Commodities Outlook: April 2017 (PDF, 438kB)