Iron ore prices are on track for their strongest weekly performance since early May, despite underlying pressures on fundamentals, as concerns over supply disruptions have been ignited. A looming strike at a key port terminal operated by BHP Billiton (BHP.US) is a primary driver. The steelmaking raw material has gained 1.6% this week through Friday, with futures on the Singapore Exchange breaking above the $99 per tonne mark.
This upward movement contrasts sharply with June's performance, where prices fell in three out of four weeks due to seasonally weaker demand and squeezed steel mill profit margins. The commodity typically faces headwinds during the off-peak season for steel consumption, pressured by increased seaborne supply and persistently high inventories at Chinese ports.
The immediate catalyst for the price rise stems from a union representing workers at BHP's Port Hedland iron ore terminal in Western Australia announcing an eight-hour work stoppage scheduled for July 16th. This action signals a further escalation in labor tensions, potentially threatening a portion of supply.
Concurrently, a dispute between Chinese state buyers and Australian miner Fortescue Ltd. (FMG) remains unresolved. Restrictions on purchasing new US-dollar denominated cargoes of the company's "Super Special Fines" product are still in effect, with state-owned procurement firms having notified several steel mills and traders to halt new purchases of this ore type.
From a fundamental perspective, profitability at domestic steel mills continues to deteriorate. Data from Mysteel indicates that only about 40% of steel mills are currently profitable, a decline of nearly 3 percentage points from last week and a significant drop of over 19 percentage points compared to the same period last year. Meanwhile, blast furnace operating rates remain robust.
At the time of writing, Singapore iron ore futures were up 0.5% at $99.20 per tonne. Iron ore contracts on the Dalian Commodity Exchange also strengthened, while Shanghai rebar futures experienced a decline.