Shock and ore: What iron ore’s 10% rebound means – by Nyshka Chandran (CNBC.com – July 9, 2015)

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Iron ore’s near 10 percent rebound on Thursday following a horror streak this week left strategists debating whether more pain is in store for the beleaguered commodity.

Benchmark ore for delivery to the Chinese port of Tianjin ended a ten-day rout overnight, rising to $48.30 a ton, a 9.5 percent increase from an all-time record low of $44.10 hit in the previous session.

Major banks like Citigroup remain bearish, predicting prices to fall below $40 a ton this year due to the commodity’s fundamental oversupply. HSBC meanwhile expects prices to trade around $45 during the third quarter. “We expect the market to go into oversupply and shake out mode again,” it said in a report this week.

But some analysts are optimistic.

“A near 10 percent bounce suggests people will think iron ore is now relatively cheap. A market that breaks to new lows and stays low is very weak, but to see such a bounce suggests there’s more comfort. So as the dust settles in the equity market, buyers will come back,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities, told CNBC on Friday.

Thursday’s rally came after the mineral ventured deeper into bear market territory this week, with losses now exceeding 20 percent since mid-June, as recent aggressive selling in Chinese equities exacerbated supply worries. China is the world’s biggest consumer of iron ore and traders are afraid that a prolonged crash in mainland stocks could have a spillover effect on China’s economy, impacting commodity demand.

But fresh efforts by Beijing to stem the market sell-off on Thursday finally worked, with the benchmark Shanghai index rebounding nearly 6 percent, and that relief filtered down to iron ore.

Bull vs bear

Despite the recent sell-off, iron ore prices are still trading 1.8 times above long run averages, the Minerals Council of Australia said in a policy paper this week, hinting that will be unsustainable going forward.

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