Why is everyone talking about the iron ore price?

Everyone’s talking about the iron ore price, with BHP Group Ltd (ASX: BHP) and 2 other ASX miners in the spotlight. Let’s take a closer look.

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The iron ore price is on a lot of lips right now, including ours. Yesterday, we were talking about how iron ore was trading at a nine-year high. Today, we’re telling you about the overnight price crash which puts the share prices of miners such as BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) under a cloud.

Year-over-year, the price has risen around 70%. So why does it seem like everyone’s talking about the iron ore price?

China likes making steel

At the start of 2020, the World Steel Association (worldsteel) reported that as of 2019, China was producing more than half of the world’s crude steel. A few days ago, worldsteel announced that China’s crude steel production has increased 8%, comparing November 2019 to November 2020.

Producing steel doesn’t exclusively involve iron ore either, right? It also involves coal, for example.

According to the World Coal Association, “Global steel production is dependent on coal. 70% of the steel produced uses coal.”

Australia likes selling China iron ore, as well as coal

A couple of days ago, Treasury was cheering about the iron ore price as the mid-year economic and fiscal outlook approached. That’s because while COVID-19 continues to ravage other industries, mining has managed to carry the flag.

Discussing Australia’s trade relationship with China back in September, the Australian Bureau of Statistics (ABS) noted, “The overall value and growth in goods exported to China in recent years has been driven by exports of resource commodities, in particular metalliferous ores (mostly iron ore), and coal.”

Exporting iron ore and coal are good for the Australian economy, point blank. So when the price of either starts going crazy, people are going to talk about it.

What lies ahead for the iron ore price?

Considering the monstrous gains that the iron ore price has experienced during 2020, a correction could be approaching. Although, unless Brazil can come back from the landslide suffered this week, pressure might remain on prices as we gear up for the new year.

The Financial Review recently pointed out that in addition to consuming more than half of the global iron ore supply, China “was the buyer of 68 tonnes in every 100 tonnes of Australian production” last financial year.

As long as the iron ore price holds such a heavy impact on the Australian economy, you can bet that people will keep talking about it. 

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Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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