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Iron ore price hits one-year high as governments turn to infrastructure projects to fuel economic recovery

Demand for iron ore is strong in 2020 thanks to renewed Chinese steel production and supply disruptions in Brazil

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China’s iron ore imports jumped by 17% in June as steel production continues unabated

The price of iron ore hit a one-year high of US$112 per tonne last week, underpinning the economic strength of a commodity that for years has languished amid oversupply issues.

Prices are up around 22% since the beginning of 2020 as demand from China’s factories continues to be strong, according to Fastmarkets MB, and China’s iron ore imports jumped by 17% in June from the May to hit the highest level since October 2017. 

“To date in 2020 iron ore has had a surprisingly good run, as Chinese steel manufacturing facilities simply proved too complex and too big to shut down during the coronavirus crisis,” Proactive’s Alastair Ford reported in June.

READ: Iron ore price strength underpins rising share prices for majors, and a few juniors too

“That meant demand for iron ore remained stronger than demand for other commodities, and meant in turn that the economic consequences for any mining companies that have been able to keep their production going have been generally favourable.”

As governments look to bring their countries out of the coronavirus pandemic-fueled economic crisis, more money is being pumped into major infrastructure projects in an effort to stimulate job creation. The Chinese government recently introduced a new stimulus package, pumping even more cash into the construction and infrastructure sectors in the country, fueling greater demand for the red metal.

Closer to home, the US House of Representatives approved a US$1.5 trillion infrastructure package at the beginning of July to boost spending on roads, bridges, public transit and rail. While the bill is unlikely to pass the Republican-dominated Senate, infrastructure spending is clearly at the forefront of US politics. Democratic presidential nominee Joe Biden has also outlined an infrastructure plan worth more than $1 trillion as part of his platform. 

Is it enough to sustain long-term demand for iron ore? Yes, says Matt Simpson, CEO of Ukraine-focused Canadian junior Black Iron Inc (TSE:BKI), which has seen a near 90% uplift in its share price since the beginning of the year.

“When we talk about infrastructure projects, these are things that take several years to complete,” Simpson told Proactive.

READ: Black Iron says discussions ongoing with potential funding partners for its large Shymanivske iron ore project

Then there’s the Brazil factor. The South American nation is combating one of the worst coronavirus outbreaks in the world with over 2.1 million cases, leading to the shutdown of some of the country’s major iron ore mines owned by the Brazilian mining champion Vale (NYSE:VALE).

As one of the largest exporters of iron ore in the world, any supply disruption in Brazil is going to cause waves in the industry and renew calls from steel producers for other options to source the metal. According to Black Iron’s Simpson, iron ore found in Ukraine is low in phosphorous and alumina, for example, which is important to making high-quality steel.

The Toronto-based junior’s Shymanivske project is strategically located in Ukraine between the markets of Europe, Russia, Asia and the Middle East. An NI-43 101 resource estimate has shown 646 million tons (Mt) of measured and Indicated mineral resources, consisting of 355 Mt in the measured category, grading 31.6% total iron and 18.8% magnetic iron. A further 188 Mt in the inferred at 30.1% iron, which will be concentrated to around 68% iron.

Steel mills and global trading houses interested to secure offtake rights to Black Iron's expected high grade 68% iron content concentrate are closely watching global travel restrictions in their home countries in anticipation of conducting their due diligence at Shymanivske after Ukraine announced its border reopening, the development company said recently.

After all, production has to come from somewhere.

Contact Angela at [email protected]

Follow her on Twitter @AHarmantas

Quick facts: Black Iron Inc.

Price: 0.4 CAD

Market: TSX
Market Cap: $99.94 m

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Black Iron Inc (CVE: BKI-OTC: BKIRF) CEO Matt Simpson joined Steve Darling from Proactive Vancouver with news the company has gone to the market announcing a private placement looking to raise 1.8 million. Simpson says that raise with go towards their Shymanivske project including...

on 04/27/2020

4 min read