Every cloud has silver lining might turn out be reality in iron ore market at the current going. 30% collapse in iron ore prices since February is creating situation wherein the fundamentals might take side turn borne out of economics rather than demand.

Iron ore with 62 percent iron content at Tianjin, China has fallen to USD 111.90 a dry metric ton from USD 158.90 in February. Inventories at the nation’s ports of 70.7 million tons are 10 percent below the five year average.

Paradoxically such abysmal conditions have sowed race amongst mills to consume more of existing inventory to create space for cheaper iron ore to cut costs. Primarily mills are still consuming iron ore to the tune of over 60 million tonne per month to match the cruising production of over 2 million tonne per day. However much of the consumption is coming from existing volumes rather than new arrivals.

It has led to decline in shipping cost owing to lack of cargoes since China is the world’s biggest iron ore buyer and its imports generate the biggest source of demand for vessels.

Low prices for high-quality ore could provide the catalyst for significant, albeit short-lived rallies during 2H 2013. It won’t be surprising to witness short burst of rally in iron ore market as mills open buying. Longevity of such rallies will remain deceptive without surge in finished steel demand.