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US tariffs, China retaliation and trade tensions send iron ore lower! With Chinese markets reopening and logistics issues in Australia, investors are on alert as the price plummets to 801 yuan per tonne.
The iron ore market is taking a major nosedive, and the reason? The long-standing trade dispute between China and the United States. With the return of Chinese markets after the Lunar New Year holiday, investors are on edge, keeping an eye on new tariffs and the impact of all this on demand. But is this drop just a scare or is there more to come? Let's understand what's going on.
The trade war is back with a vengeance and iron ore has felt the blow
It may sound like a soap opera, but the dispute between the world's two largest economies is relentless. Now, the US has decided to impose an extra 10% tariff on all Chinese imports. Of course, China wasn't going to take it lying down: it retaliated in kind, taxing American products, including coal, an essential ingredient for steel production.
With this tariff back-and-forth, investors have hit the brakes. The May iron ore contract on the Dalian Stock Exchange closed down 0,99%, at 801 yuan (about $110) per ton. And why? Simple: if demand for steel falls, iron ore consumption goes down the drain. The market doesn't like uncertainty, and this trade dispute is adding fuel to the fire.
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China is back from holiday and reality is knocking on the door
According to InfoMoney, between January 28 and February 4, Chinese markets were closed to celebrate the Lunar New Year. Usually, after this break, there is optimism and a strong resumption of trading. But this time, the crowd opened his eyes and saw a very different scene, full of new tariffs and market uncertainties.
ANZ analysts had already predicted that when the Chinese stock market reopened, market sentiment would suffer from this avalanche of tariffs. And that was it. As soon as business resumed, pessimism took hold and iron ore felt the blow.
Troubles in Australia: A Temporary Relief?
As if trade tensions weren't enough, the weather has decided to give iron ore a helping hand. Rio Tinto, a giant in the industry, has started to withdraw ships from two ports in Western Australia due to the threat of two tropical cyclones. In other words, less ore leaving Australia means tighter supply, which could prevent an even greater drop in prices.
Not to mention that, in January, Rio Tinto had already warned that heavy rains had disrupted its rail operations. Now, with more problems on the horizon, shipments could be compromised in the first quarter. Less ore available on the market could give prices a break, but that won't solve the issue of tariffs.
Global steel production: who’s in the game and who’s losing ground?
Figures from the World Steel Association show that global steel production is well divided:
- China: -1,7%
- Japan: -3,4%
- USA: -2,4%
- Russia: -7,0%
- South Korea: -4,7%
- India: +6,3%
- Brazil: +5,3%
- Germany: +5,2%
- Türkiye: +9,4%
While China, Japan and the US slow down, India is growing with full force, increasing its steel production. Brazil also stepped up, which shows that the steel market is undergoing a change of scenario.
With a 5,3% increase in steel production, Brazil is consolidating itself as an important player in the global market. But will it be able to maintain this pace? Much depends on the external scenario. With the US and China fighting, any change could affect demand and, consequently, the sector here in Brazil.
And now, where does the iron ore go?
The truth is that no one has a crystal ball, but one thing is certain: as long as the US and China continue this tug-of-war, the iron ore market will remain unstable. If China slows down its steel production once and for all, the impact could be even greater.
For those who are keeping an eye on this market, the secret is to stay tuned to trade policies and the movements of the main players in the sector. Expand markets and reduce dependence on China can be a smart strategy, and Brazil, like India, has the potential to grow in this scenario.
