Iron ore: Smoke where fire — steel and stimulus

The market for iron ore continues to be driven in two directions by forces in China, and this has led to relative price stability. On the one hand, the market has been bolstered by a fiscal stimulus worth 3% of China's GDP, while further policy measures have been designed to support traditional channels of national production.

However, headwinds from U.S.-led tariffs continue to impact the growth of China's export sector, which would otherwise have grown strongly, albeit with inefficiencies. These competing forces are largely kept at bay for now as China's National Day and Golden Week Holidays from Oct. 1-7 limit purchasing activity and market participants abstain from trading.

We expect prices to remain elevated throughout the December quarter and to average approximately US$70/t into 2019. As the Chinese production of concentrate slows due to lower temperatures, import demand for iron ores with low alumina content is expected to increase for each tonne of crude steel produced. As of Oct. 3, alumina penalties were at US$6.8/t per percentage point of alumina between 1% and 2.5%, according to S&P Global Platts.