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A crackdown in China triggers a fall in iron ore as analysts suggest caution, with Anglo American directors taking the chance to sell shares
Thursday 18 Mar 2021 Author: Yoosof Farah

Signs are starting to emerge that the rally in iron ore prices may have peaked.

The price of iron ore, a key ingredient in steelmaking and a bellwether metal for the health of the global economy, has surged in the past year. This has been driven by soaring demand from China – the world’s largest iron ore consumer – and as optimism grows over a big global economic recovery.

But after breaking the $170 per tonne barrier this month, prices in the past week have slipped back 5% to $165 per tonne, the trigger being a crackdown in China on excess capacity in the country’s vast steelmaking industry and policy measures to clean up pollution from the sector, which reportedly accounts for 15% of all the country’s emissions.

Chinese demand is still expected to remain strong, despite government officials calling for a fall in the country’s output this year, and that combined with recovery in demand elsewhere as economies reopen should provide a layer of support for the majority of 2021.

Since the iron ore rally took off at the start of November, share prices of many big miners rallied with several reporting bumper earnings.

However, analysts suggest exercising caution on iron ore at current levels, with many seeing prices falling back to around $100 per tonne by the end of the year.

PRICES ‘OVER-EXTENDED’

Liberum analyst Ben Davis says a bull factor for iron ore could be a ‘large, fully-funded infrastructure rebuild program for the US economy’, but warns iron ore prices right now are ‘over-extended’ and ‘abnormally high’, with supply at mines across the world expected to ramp up in the second half of the year at a time when China’s demand moderates.

This could explain why some directors at Anglo American (AAL) have taken the chance to sell shares, in another sign we may have reached peak iron ore.

After a dismal first half of 2020 as the pandemic hit, Anglo American’s earnings in the second half hit $6.5 billion, its best second-half performance in 10 years, as iron ore surged. In 2020 the commodity accounted for 47% of the group’s underlying earnings.

That has led the firm’s share price to move steadily higher in recent months to near all-time highs, having crossed the £30 mark for the first time in almost a decade.

Didier Charreton, Anglo’s director of people and organisation, sold 87,218 shares at £29.28 each in a deal worth £2.6 million, while Bruce Cleaver, chief executive officer of the firm’s De Beers diamond arm, sold 25,000 shares at £28.85 each in a transaction totaling £721,250.

That came after Ruben Fernandes, CEO of its base metals division, sold 22,179 shares at £28.59 each in a deal worth over £634,000.

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