Like many other commodities, Iron Ore started 2023 on a high note.
From January to mid-March, Iron Ore rallied over 23% higher.
From there, it’s price (and other commodities) started to turn…and head in the other direction.
But surprisingly the direction of the Iron Ore price changed after it dipped below $100 in late May.
Since then, iron ore has soared over 35%!
So why the about turn for Iron ore when many other commodities have not followed suit?
Rise of Asian urbanisation…
Firstly, iron ore is integral to the steel-making process. It takes around 1.6 tons to produce one ton of steel.
In other words, if demand for steel is rising, the demand for iron ore should rise too. And vice versa.
China is the largest producer of steel. After all, the country has embarked on a housing and construction spree for many years.
In fact, one of the major reasons for the iron ore price dropping earlier this year was because of China’s property development collapse.
So this still doesn’t explain the rebound in prices?
Despite a severely strained property market, manufactured goods and infrastructure demand in China are up.
And China has been exporting more steel. By July, China’s steel exports hit a seven-year high.
While the global economy may be slowing overall, there’s pockets of excellence in certain regions.
Urbanisation in India, the Middle East and south-east Asia is driving commodity demand.
Last week, the World Steel Association (WSA) confirmed this saying global steel consumption in 2023 has remained stable thanks to demand from India and Japan amongst others in the region.
And this trend should continue…
Earlier this month, one of the largest iron ore producers – Rio Tinto – said as many people will urbanise in the next 10 years that have done so in the last decade.
And India (with the largest population in the world) is the big demand driver.
As with many commodities, future supply could be an issue.
Over the last 10 years, capital expenditure on new mines has fallen away because the big companies paid down debt and paid out profits as dividends.
What’s worse, according to Rio Tinto, it’s taking them longer to get new mines permitted.
So at some point it’s possible supply and demand don’t meet the current equilibrium and prices continue higher.
According to WSA, global steel demand is expected to slightly increase by 1.7% in 2024.
While that’s not “huge”, the slightest disruption to supply can send prices soaring.
We already saw this in 2021 when iron ore went over $200 a tonne.
And we’ve seen price spikes in oil, coal, rare earths, lithium and more recently, uranium.
The good news for investors is these price spikes bring profit opportunities.
And I just revealed one such opportunity to profit from a higher iron ore price in November’s issue of Real Wealth. You could potentially double your money on this stock in the coming 24 months.
PS. In my November issue of Real Wealth, I revealed details on this JSE listed diversified mining company. It’s arguably one of the best-run companies on the JSE… And those who have invested in this company have been handsomely rewarded. A R100k investment would be worth R453,904 today.
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