Iron ore prices and related stocks such as Kumba Iron ore are likely to remain under pressure for the remainder of this year, as slow growth across the construction sector and tariffs on goods from China dim full recovery prospects.
Kumba and ArcelorMittal South Africa (Amsa), which manufactures steel, have been facing operational constraints in South Africa emanating from Transnet’s inefficiencies.
Although Bruce Williamson, a resources analyst at Integral Asset Management, said South Africa was a small player in the global steel and iron ore market, Kumba and Amsa are large companies in the domestic economy.
Shares in Kumba have been down by about 32% in the past three months, and lower by 10.51% in the past 30 days. However, on Monday shares in the company appreciated 0.58% in afternoon trade after the iron ore price.
Amsa, on the other hand, weakened 0.81% in yesterday’s afternoon trade session although it has been softer by 10.87% in the past 30 days.
“Steel demand challenges, coupled with slow growth in the major economies, tariffs on Chinese goods, and Chinese steel dumping suggest that the Iron ore price will remain under pressure in the second half to December,” said Williamson.
Over the 18-month period from January, 2021 iron ore (Fe 62%) prices averaged $183 per ton and then averaged about $118 per ton over the 18-month period from January, 2023 to June, 2024.
In line with the recent dip in Chinese steel prices the Fe 62% price averaged $105 per ton for July/August, which represented a further 11% decline, with spot prices on Monday trading 0.14% weaker at about $98 per ton compared to 17% higher in the first half of this year.
Despite having “a superb ore-body and mining as well as processing infrastructure, Kumba has been badly let down” by Transnet.
Although its share price has historically been very volatile, Kumba’s share price has broken the 2018 to 2024 downside line and traders are expected to be wary to buy until news improves, added Williamson.
“In addition, the rand has firmed and with the Fed likely to start cutting rates in September, the rand may remain stronger than what Kumba achieved in the first half of 2024,” he said.
Pressure on the Chinese steel market, Chinese dumping, tariffs on Chinese goods, no near-term Transnet improvement, and rand strength suggest that the Kumba price will remain under pressure.
With the local steel market seen by analysts as small for Kumba, its focus on the export market will also be a big pressure point given the supply and demand dynamics on global markets such as China.
South Africa is nonetheless one of the largest producers of iron ore in Africa exporting $4.8 billion of the commodity in 2022.
“China’s iron ore futures continue to rebound, Singapore’s contract hit new highs since August 13, as China’s port iron ore stockpiles decline,” said market watchers yesterday.
China dominates production of global steel, accounting for between 50% and 55% of global output. However, with the Asian country’s local iron ore tending to be low grade, it is forced to import higher grade iron ore mainly from Brazil and Australia.
Its steel market has been greatly impacted by the sharp decline in the local housing market, with some of the lower housing demand for steel being replaced by auto and renewable energy infrastructure. Still, China has an excess of about 100 million tons of steel.
“This means that China has increased its supplies of steel to the export market. Many countries are complaining of steel dumping by China and could retaliate with tariffs. Locally, Amsa is very unhappy having to compete against Chinese imports,” added Williamson.
BUSINESS REPORT