![\"\"](\"http:\/\/commodity-trading.campus.local\/commodity-trading\/wp-content\/uploads\/2018\/11\/p1.jpg\")
<\/p>\nMovement of the 62%, Fe fines iron ore Price<\/u><\/p>\n
At the begging of the month of November the price was at 73$\/Mt and started to increase till the 9th November, since than the prices is decreasing till today at the price of 74.81$\/Mt<\/p>\n
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The causes:<\/p>\n
This is due to the arrival of the winter and to the regulation from the local government of Hebei in China. Hebei is the largest steel production province.<\/p>\n
The local government of Hebei announced an \u201corange\u201d alert for smog in the air forcing the mills of steel to reduce their production until 16 November.<\/p>\n
Steelmakers want to maximize their output of steel before winter; therefore, they need a high quality of iron ore in order to obtain the higher margin as possible. That is why the prices went up.<\/p>\n
Since the prices of steel is decreasing, in consequence the margin is lower for the Chinese mills. Which push them to buy low grade of iron ore (58%Fe) in order to maintain their profit margin because low-grade iron ore reduce cost.<\/p>\n
Since the announcement of \u201corange\u201d alert, Chinese companies has halve their production, which decreased iron ore, 62%Fe demand.<\/p>\n
![\"\"](\"http:\/\/commodity-trading.campus.local\/commodity-trading\/wp-content\/uploads\/2018\/11\/b1.png\")
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This graph shows the basis evolution of iron ore from July 2018 to October 2018.<\/p>\n
From the middle of July until the beginning of August, the future price is higher than the spot price, which means it is a contango, there is enough supply and lower demand. It is a normal state of the market and the signal of it is that we should store.<\/p>\n
Then the situation changes: the spot price is higher than the future price in August, so it is slip to a backwardation which means demand is greater than supply, the market is hot, people want to buy so we should sell and do not store.<\/p>\n
Finally, from the beginning of September until October, we can observe that the situation of the market changes again into a contango state. There is more supply than demand and we should store the iron ore.<\/p>\n
As the whole of Chinese steelmakers companies count for 74% of the iron ore global market share, if their demand in construction or transportation sector increase, the price of the iron ore will rise also.<\/p>\n
Recommendation<\/p>\n
We recommend going long because today the prices for future contract are decreasing until the end of 2019, show in the table below.<\/p>\n
![\"\"](\"http:\/\/commodity-trading.campus.local\/commodity-trading\/wp-content\/uploads\/2018\/11\/p2.jpg\")
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Sources:<\/p>\n
Market Index. (2018). Iron Ore<\/em>. [online] Available at: https:\/\/www.marketindex.com.au\/iron-ore <\/a>[Accessed 15 Nov. 2018].<\/p>\n Investing.com. (2018). Iron ore fines 62% Fe CFR Futures Historical Prices – Investing.com<\/em>. [Online] Available at: https:\/\/w<\/a>ww.investi<\/a>ng.com\/commodities\/iron-ore-62-cfr-futures-<\/a> historical-data [Accessed 15 Nov. 2018].<\/p>\n Argusmedia.com. (2018). <\/em>China’s steel profit margins accelerate falls. [online] Available at: <\/em>https:\/\/www.argusmedia.com\/en\/news\/1790676-chinas-steel-pro<\/em><\/a>fit-marg<\/em>ins-accelerate-falls<\/em><\/a> [Accessed 15 Nov. 2018].<\/em><\/p>\n Scutt, D. (2018). <\/em>Iron ore prices slump. [online] Business Insider Australia. Available at: <\/em>https:\/\/www.businessinsider.com.au\/iron-ore-prices-china-steel-demand-hebei-2018-11<\/em><\/a> [Accessed 15 Nov. 2018].<\/em><\/p>\n U.S. (2018). <\/em>RPT-COLUMN-LME bets on new contracts to force steel industry…………………………………………………………………………………………………………………………………………… [online]<\/em><\/p>\n Available at: https:\/\/<\/em>www.reuters.com\/article\/steel-pricing-ahome\/rpt-column-lme-bets-on-<\/em><\/a> new-contracts-to-force-steel-industry-change-andy-home-idUSL8N1XH4OV [Accessed 15 Nov. 2018].<\/em><\/p>\n MB, F. (2018). <\/em>Iron ore pricing explained | Metal Bulletin.com. [online] Metalbulletin.com. Available at: <\/em>https:\/\/www.metalbulletin<\/em><\/a>.<\/em>com\/Article\/3811904\/Iron-ore-p<\/em><\/a>rici<\/em>ng-explained.html<\/em><\/a> [Accessed 15 Nov. 2018].<\/em><\/p>\n Foundation, T. (2018). <\/em>China’s Hebei province issues orange alert for smog. [online] news.trust.org. Available at: <\/em>http:\/\/news.trust.org\/\/item\/20181112011729-8eqc1\/ <\/em><\/a>[Accessed 15 Nov. <\/em>2018].<\/p>\n","protected":false},"excerpt":{"rendered":" Movement of the 62%, Fe fines iron ore Price At the begging of the month of November the price was at 73$\/Mt and started to increase till the 9th November, since than the prices is decreasing till today at the price of 74.81$\/Mt The causes: This is due to the arrival of the winter and … <\/p>\n