Chinese demand for Iron Ore still strong

Chinese appetite for Iron Ore is still insatiable. Fortescue Metals in Australia has reported that their shipments have increased by 5% entirely as a result of China’s demand for the ferrous metal. China needs Iron Ore as a key ingredient in steel production, and an important component of their infrastructure spending. This would certainly explain Iron Ore outperforming Gold over recent periods.

Oct 29 (Reuters) – Australia’s Fortescue Metals Group Ltd FMG.AX posted a 5% rise in first-quarter iron ore shipments on Thursday, as demand in China for the steelmaking ingredient remained robust.

Despite a coronavirus-induced slump in demand for most commodities this year, iron ore prices have remained buoyant as China, the world’s top metals user, ramped up infrastructure spending to counter the economic shock from curbs to contain the virus.

The world’s fourth-largest iron ore miner said its ore fetched $105.77 per dry metric tonne (dmt) in the quarter, compared to $85 per dmt a year earlier.

Improving conditions in China have also helped larger peer BHP BHP.AX report higher iron ore output, but a resurgence in coronavirus cases elsewhere had led miner Rio Tinto RIO.AX to warn that global economic growth was still at risk.

However, Fortescue struck an upbeat tone and said it was “well-positioned” to meet its full-year iron ore shipment forecast of 175 million tonnes to 180 million tonnes (Mt).

The Perth-based miner shipped 44.3 Mt of the steel-making material in the quarter ended Sept. 30, compared with 42.2 Mt a year earlier, and in line with UBS estimates of 44.1 Mt.

This is a bullish signal for Iron Ore, considering China is in the middle of a trade war with Australia. They recently banned the import of coal from Australia, have been looking for alternatives, but have continued to import from Australia given the lack of apparent substitutes at the moment.

It is only a matter of time before China actively seeks alternate sources of the raw material key to steel production. Savvy investors will purchase stock accordingly.

Our recommendation is still bullish on Black Iron Inc (TSX:BKI), and the timing is certainly good given BKI is in the middle of securing production financing. The company is undertaking a formal offtake process, with the first round being completed, and the second round to be completed early next year.

Management is very pleased to update that as an additional source of funding for Project construction, a second Heads of Agreement with a construction company that includes an investment package valued at ~US$60 million has been signed. For clarity, only one of the current two construction companies will be selected to build the Project, and by having this company make a material investment towards Project construction, their interests become fully aligned with existing investors to complete construction on time and budget. Black Iron expects to conclude a binding construction / investment agreement after the offtake investment has been secured.