Iron Ore Prices Hit 5 Year High as Supply Concerns Wage On

As iron ore continues to be a hot topic in the investing space, this week saw the commodity’s price point shoot past highs not seen since early 2014.

The base metal has been gradually climbing over the last year, but started gaining serious traction in February following the tailings dam collapse at Vale’s (NYSE:VALE) Córrego do Feijão mine in Brazil.

With an annual iron ore production loss of approximately 90 million tonnes, also due in part to subsequent issues Vale faced after the January disaster, prices have grown as supply has tightened.

While prices of the base metal have generally hovered between US$96 and US$108 per tonne over the last month, the commodity made leaps and bounds this week as it shot from Friday’s (June 28) US$109.18 close to US$123.19 by Tuesday (July 2). This marks the commodity’s highest point since March 2014; since then, it had not broken the US$100 mark until this month.

According to a recent report from Australia’s chief economist, the shortfall in iron ore supply stemming from the Vale incident is set to last at least two years, putting the commodity’s price point in a growing position as the seaborne market remains tight until 2021.

The report went on to say that Australia would be doing its part to help fill the gap, with the country utilizing its stance as the world’s largest exporter of iron ore. With large producers ramping up to their long-term production goals, iron ore exports from down under are expected to grow from 2018 to 2019’s 806 million tonnes to 869 million tonnes by 2020 to 2021.

Helping contribute to the country’s iron output are major miners such as Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and Fortescue Metals Group (ASX:FMG,OTCQX:FSUGY). The two companies have both recently made moves that put them closer to expanding some of their iron ore operations, being the West Angelas operation for Rio and Queens Valley for Fortescue.

As of 4:42 a.m. EDT on Wednesday (July 3), iron ore prices had eased ever so slightly to US$123.16 per tonne.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.