LAUNCESTON (Australia), Aug 06 (Reuters): While iron ore has been hammered by the renewed escalation of the U.S.-China trade war, there are also signs the supply crunch that sent prices to a five-year high is easing.
Iron ore futures on the Dalian Commodity Exchange (DCE) fell by the 6.0per cent exchange limit during Monday's trade, after China's yuan fell to more than seven to the U.S. dollar, its weakest in more than a decade.
The United States responded to the yuan weakening by labeling China a currency manipulator, a move likely to stoke already inflamed trade tensions.
DCE iron ore ended Monday at 709 yuan ($100.71) a ton, its weakest close in a month, while spot cargoes of benchmark 62per cent iron ore for delivery to China, as assessed by commodity price reporting agency Argus, finished at $99.80, the softest since June 6.
The spot price is still 32.2per cent above the level of Jan. 24, the day before a tailings dam collapsed at a mine operated by Brazil's Vale and left more than 200 dead and dozens still missing.
That disaster resulted in the shutdown of several of Vale's operations for safety checks, cutting shipments from the world's second-biggest exporter of the steel-making ingredient.
But there are signs that Brazil's exports are starting to recover, with China, the world's top buyer, importing the most from the South American nation in July since March.
China imported 17.7 million tonnes from Brazil in July, according to vessel-tracking and port data compiled by Refinitiv, more than double the 7.7 million recorded in June, and almost matching the 18.2 million taken in March.
It's also likely that China's imports of Brazilian ore will continue to rise in August, given that Brazil's July exports rose 16.6per cent from the previous month to 34.3 million tonnes, according to official data released on Aug. 1.
The improved performance from Brazil comes as Vale was authorized in June to restart operations at its Brucutu mine, which has a capacity of 30 million tonnes a year. China's overall imports were also strong in July, coming in at 87.8 million tonnes, up from 76.8 million in June and the strongest month since March.
China's imports in the April to June period were not only affected by the curtailing of shipments from Brazil, though, as a tropical cyclone in late March idled mines and ports in northwestern Australia, the main producing area in the world's top exporter.
What the vessel-tracking numbers show is that supply is returning to normal, and therefore the premium prices should start to leave the market.
A further factor worth considering is the level of China's port inventories, which climbed for a third week in the week to Aug. 2, reaching 121 million tonnes, according to consultancy Steelhome.
