High Ground

For some mining companies’ revenues, the trade war is looking like a phony war

- Tim Treadgold

The price of iron ore and coal, two of the world’s most widely used minerals, has been rising since mid-2018 even as the US and China ratchet up tariffs. UBS, an investment bank, had been expecting the benchmark price for high-grade iron ore to slip back from $72 a tonne to $68 a tonne rather than rise to $76 a tonne, which is what’s happened.

The price increase was good enough for UBS to tell clients with an eye on iron ore mining companies to “watch for earnings upgrades thanks to strong spot [short-term] prices”. So although tentativeness or anxiety about the macroeconomy in an era of trade nationalism is cited in some quarters for recent price dips in global staples such as oil, the commodity picture in Asia-Pacific has contrasts.

What appears to be driving the rise in iron ore is Chinese demand for construction-grade steel used as “rebar”, or the reinforcing rods which strengthen concrete in high-rise buildings and civil works such as bridges. With exports of manufactured goods to the US shrinking, the Chinese government is falling back on a well-used plan of bolstering the country’s economy by encouraging domestic construction.