(Bloomberg) -- Iron ore futures powered toward $100 a ton in Singapore, lifted by a record monthly advance that’s been driven by supply woes in Brazil and sustained, robust demand in top steel producer China.
Most-active futures have jumped 22% in May as Brazil, the world’s second-largest exporter, saw a surge in coronavirus infections, stoking worries that the pandemic may curb local supply. Last month, miner Vale SA (NYSE: VALE ) cut its annual shipment guidance on bad weather and the virus’s impact on operations. Meanwhile, port stockpiles of iron ore in China have continued to decline.
The industrial staple has prospered in 2020 even as the coronavirus pandemic hammered industrial activity in many economies, although Bloomberg Intelligence has been among observers warning that market may flip to a surplus in the second half. In addition to Vale, the higher prices will bolster returns at BHP Group (NYSE: BHP ), Rio Tinto (NYSE: RIO ) Group and Fortescue Metals Group (OTC: FSUGY ) Ltd.
The early resumption of industrial operations in China has fueled a recovery in downstream activity and steel mills continue to increase output, China International Capital Corp. analysts including Ma Kai wrote in a note. “Iron ore will fundamentally maintain a tight balance this year,” with supply gradually recovering from the third quarter, they said.
Prices jumped as much as 5.7% to $98.24 in Singapore, and traded at $98.16 at 3:16 p.m. local time, set for the highest close since August. On the Dalian Commodity Exchange, futures have rallied 23% this month.
Credit Suisse (SIX: CSGN ) Group AG recently estimated that the market is now at “peak tightness,” a condition that will probably persist until July. Bloomberg Intelligence expects a 34-million-ton surplus in the second half on higher supply and stagnating demand, flipping from a 25-million-ton deficit in the first half.
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