The specific gravity of iron ore is roughly five. That means it cannot float on water, or air. The iron ore price has no respect for the laws of physics. It has jumped almost 30 per cent over the past two months despite a dire outlook for demand.
Iron ore is a key input for steelmaking. China, which produces over half of the world’s steel, is the key consumer of iron ore. Chinese steel prices have steadily fallen, hinting that demand there has declined. Iron ore prices will have to follow — probably later this summer.
China has too much steel capacity. That is clear from the price movement of common steel products such as hot rolled coil, which is down a fifth in local terms this year. That is because steel consumption has dropped 5 per cent year to date. This unhealthy mix encourages only more Chinese steel exports.