Climate Pledges Affecting Iron Ore Prices in China

China’s efforts to reduce its climate footprint resulted in a 12% drop in Asian Benchmark iron ore prices on the Dalian Commodity Exchange for 2021.

Full-year iron ore futures prices declined for the first time in three years, after prices rose mid-year before crashing due to Beijing's strict production curbs in line with its climate-change goals.

Unrelenting steelmaking demand in 2019 and 2020 saw iron ore prices climb to record highs, with China’s heavy reliance on iron ore seeing it import as much as 80% of its iron ore requirements from Australia and Brazil. However, the central government recently ordered that output at steel plants be slashed to reduce carbon emissions, leading to a price drop. Analysts expect iron ore prices to remain unstable as supply chains adjust to these new restrictions.

What does this mean for me?

Pressure to meet climate goals will affect the supply-and-demand dynamics of commodities in key markets for some time to come. As a result of ever-more ambitious climate change targets, governments are actively trying to reduce their reliance on climate-harming activities.

The falling price of iron ore is but one clearly visible effect of manufacturing countries like China trying to meet ever stricter climate goals. As a commodities trader, it is a good idea to monitor these developments as you refine your commodities portfolio.