Insight
Iron ore time spreads indicate the market is overheated
*Please note that this report only includes an Excel data file if this is indicated in "What's included" below
Report summary
The 62% Fe iron ore index has averaged $95/t so far this year. Our pre-COVID forecast for CY 2020 was $80/t. It is now increasingly clear that we underestimated the scale and timing of Beijing’s stimulus package targeted at steel intensive infrastructure. But there are other factors at play; including the flow of speculative money into the market. In this note we examine iron ore time spreads and how they compare to previous years. Spread levels are wide as the iron ore price continues to rally. We believe this signals selling potential, consistent with our supply/demand driven view that indicates lower prices in response to rising Brazilian supply and stabilising Chinese demand.
Table of contents
- Executive Summary
- We don’t think current iron ore market fundamentals justify such pricing
- Q4/Cal+1 spread suggests downside risk for iron ore prices
- Moreover, Q+1 vs Q+2 time spreads are trading at high levels compared to last year
- The relationship between flat price and time spreads
- A quick note on iron ore price volatility
- In summary:
Tables and charts
This report includes the following images and tables:
-
Boxplot – M+1* since January 2018Q4 vs Cal+1* – SeasonallyQ+1 vs Q+2 – RollingSensitivity analysis on spot price vs front months spreadsIron Ore 20 days Annualised Price Volatility vs Price M+1*
What's included
This report contains:
Other reports you may be interested in
Insight
Iron ore pricing: Market evolution update
New 61% Fe index: Addressing shifting ore grades and market dynamics
$1,050
Insight
Australia's iron ore market: Challenges and opportunities ahead
The market is evolving: demand for lower-grade ore is decreasing, while demand for higher-grade ore for low-carbon steelmaking is rising.
$1,050
