Iron Ore Price Collapse & Rally

摘要

Spot iron ore prices have witnessed extraordinarily wild swings in the last month, including a crash of $50+/t in just three weeks to a 22-month low of $117/t. This was followed by a swift recovery to $147/t within three weeks. While there is evidence of weakening end-user demand in the steel sector (see below) and an increase in supply from Australia and Brazil, the suddenness of the price drop was exaggerated by the existing pricing system. With quarterly contract prices based on historical spot prices (the previous three months with one-month lag), as the spot price drifted below the 4q11 quarterly contract price, there emerged an incentive for buyers to minimise purchasing ahead of lower contract pricing in the 1q12.