Global supply shocks have pushed the iron ore price up 70% so far this year, hitting a five-year high of $126 per tonne earlier this month. At the same time, China's iron ore futures hit the highest level since 2013, thanks to the nation's growing demand for the steelmaking material.
An increase in steel production in China paired with the slumping supply from Australia and Brazil is creating a buzz among analysts, who suspect that the iron ore price isn't done rallying. While this isn't great news for steelmakers in China who have voiced their concerns about the rising price, it's very encouraging for investors interested in the iron ore space.
The lack of supply coming from iron mining giants BHP Group (NYSE:BBL), Vale SA ADR (NYSE:VALE), and Rio Tinto (NYSE:RIO) offers junior iron ore miners an opportunity to gain a share of this bull market.
Iron Ore Price Supported by Tight Supply
The iron ore price increase is mainly due to continuous issues faced by the world's largest iron miners since the beginning of the year. The first was the deadly dam disaster at Vale's Brumadinho dam in Brazil, which killed over 200 people and caused billions of dollars in environmental damage. The mine produces roughly 93 million tonnes per year, causing a huge loss in supply.
On Monday, Vale announced that it will be paying $106.5 million to workers that were affected by the tailings dam rupture.
Then severe weather created by Cyclone Veronica caused BHP Billiton (LON:BHPB) and Rio Tinto to cut their production forecasts. Rio faced operational issues at its Cape Lambert iron ore export terminal as well after a fire broke out in January. Rio has since seen an increase in iron ore shipments, however, they are still down 3% from this time last year.
What's more, domestic iron ore mines in China have been shutting down due to strict air pollution standards set by the nation.
Junior Iron Ore Miners Looking to Meet Market Demand
The rising iron ore price is attracting the attention of investors, providing junior miners the much-needed funding to bring their projects to production.
One company that gained some capital recently is Macarther Minerals Limited (TSXV:MMS) (OTCQB:MMSDF), which raised $6 million USD in gross proceeds from a previously announced private placement offering.
Macarthur will be using the funds to complete a bankable feasibility study at its Lake Giles Iron Ore project in Western Australia. The project incorporates the mineral resources from the Ularring Hematite Project, which has indicated resources of 54.46 million tonnes at 47.2% iron and inferred resources of 25.99 million tonnes at 45.4% iron, and the Moonshine Magnetite project, which contains inferred resources of 710 million tonnes at 30.2% iron.
Meanwhile, Strike Resources (ASX:SRK) announced a maiden resource for its Western Australia-based Paulsens East iron ore project, which revealed 9.1 million tonnes at 63.4% iron. Based on the results, the company plans to fast-track the development of the project within the next nine months.
Overseas in Ukraine, Black Iron Inc. (BKI) gained government support for its Shymanivske Iron Ore project, which contains measured and indicated resources of 646 million tonnes.
In Canada, Delrey Metals (CSE:DLRY) continues to advance its Four Corners vanadium-iron-titanium project in Newfoundland. In May, the company reported assays from Four Corners that revealed iron results ranging from 19.16% Fe203 (iron oxide) to 48.61% Fe203, with an average grade of 35.07% Fe203.
On Tuesday, Delrey Metals announced the plans for its 2019 drill program at the project, which will cover a total of 500 meters from 20 drill pads at its flagship Keating Hill East Zone.
Investors interested in the iron ore market will want to keep an eye on China's demand for the steelmaking metal, as it will signal further price increases to come.