Commodity Trading Expert Vaman Kumar Demystifies Iron Ore Prices
Vaman Kumar, an industry expert in the field of global mineral trading, talks about future of iron ore trading. He presents a comprehensive analysis of trends and economic factors affecting one of the most extensively traded minerals.
Although most iron ore traders thought that is a reversal, actually the prices are in a retracement period from its high. It is a normal behavior of the market, mostly because lot of factors changed.
Speculations regarding the price and evolution of iron ore have started to escalate in recent times. Multiple influences have seen prices of iron ore steadily decline. Past literature on commodities’ super-cycle presents China and Chinese economic growth as the main drivers of supply and demand for iron ore. Since 2000, demand for iron ore from Chinese manufacturers has doubled the volume of imports using seaborne trading.
Commodity trading expert Vaman Kumar analyzes the position of the iron ore market and speaks about future trends. “We need to take into consideration the fact that since the early 2000s the price of iron ore increased dramatically. The global crisis hit the entire world in 2008 leading to iron ore using industries reducing their activity. Though the price of iron ore was affected in the short term, the overall outlook remained steady.”
According to his research, political, economic and most of all active participants confidence are the leading influence factors that drive the price of iron ore. “From 2000 to 2010, volume of iron ore production doubled from 576kt to 103 kt. The price continued an upward trend starting at $ 0.25 per DMTU in 2000 and reaching a peak of over $200 in 2011 - 2012. The fact that the iron ore market was formed as an oligopoly with three main players, Vale SA, BHP Billiton Limited and Rio Tinto permitted for the price to be formed based on negotiations between the three. But their dependence on China’s demand and high investments in iron ore extraction put a mark on their profitability. ”
He notes that the recent price decline in iron ore was actually a correction. “Although most iron ore traders thought that is a reversal, actually the prices are in a retracement period from its high. It is a normal behavior of the market, mostly because a lot of factors changed”. This in turn also affected allied industries and service providers. Major equipment manufacturing companies like L&T, Bharat Earth Movers Limited, now known as BEML. Sluggish demand in China and subsequent ban of exports in India have made allied industry players like L&T and BEML suffer huge losses on account of a great loss of opportunity. This coincided with an increase in suppliers and a slowdown in China’s production in the steel sector. Lawmakers in China took the decision of shutting down iron ore plants in order to reduce the pollution levels, which were at record highs".
Vaman Kumar opines that iron ore prices are taking the model of gold prices that started to drop in June 2013 based on the speculation of economic recovery in USA. At that time, Goldman Sachs had announced the drop in the price of gold one month before it actually happened. Similarly, Goldman Sachs predicted the drop in iron ore prices in October 2013 to $108 per ton. Gold has already recovered 50% of its drop from mid 2013, so one can expect the price of iron ore to stabilize around the $110 per ton level, and until the end of the year to restart its uptrend.
He further states that iron ore derivatives, though relatively new will determine the market price of the metal in the future in a pure market. With the American economy back on track and an exponential development observe in the emerging markets, and especially in Africa, it can be expected that starting from the middle of 2014 the price of Iron ore to stabilize and for India’s exports to increase.
About Vaman Kumar
Vaman Kumar, is an industry expert in the field of international trade and global commodity trade especially in the field of iron ore trading. He has been associated with Nordbell Commercial Limited and his interests including Metals, Minerals and Energy in Commodity Trading, International trade, Banking, Finance and Credit and Risk Management.
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