UBS noted that the price of iron ore has increased week on week, reaching around $118 per tonne. This upward move comes despite indicators suggesting some weakness in fundamental aspects of the market. Port iron ore inventories remained essentially flat, deviating from usual seasonal trends.
The expected seasonal surge in demand was described as modest, as evidenced by pig iron production data from the China Iron and Steel Association (CISA) for the first ten days of April and blast furnace utilization rates from MySteel.
The supply of iron ore, however, has seen a surge. Shipments from traditional markets increased 4% year over year. This increase includes a notable performance from Brazil. While raw material costs have fallen, steel margins have improved, albeit against a backdrop of lower steel prices. Meanwhile, net exports of finished steel from China reached record levels in March.
The market’s response to these mixed signals includes a small net long position on the Dalian Commodity Exchange. Despite rising prices and various market signals, UBS maintains a neutral stance on major mining companies such as Rio Tinto, BHP Group and Vale.
UBS estimates BHP’s spot free cash flow (FCF) yield to be around 8%, while Rio Tinto and Vale’s yields are around 10% and 14% respectively. These figures are part of UBS’s interactive model ratings for companies.
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