Chinese steel mills drive iron ore price surge – by Matt Chambers (The Australian – July 18, 2016)

The forces driving a recent 20 per cent surge in the iron ore price became clearer in recent days as monthly Chinese data revealed the Asian giant’s steel mills are at their busiest ever, despite expectations of a slowdown.

The official June data, coupled with industry data showing steel inventories had fallen, led to reports that underlying steel demand was healthy, despite general market speculation that a slowdown in demand is looming.

The price of iron ore, Australia’s biggest export and the key ingredient in steel, had risen from $US48 a tonne in early June to nearly $60 a tonne. However, on Friday iron ore fell 1.4 per cent to $US57.80 a tonne . Even so, the ongoing rise has pushed up the shares of Fortescue by 25 per cent and mining giant Rio Tinto by 16 per cent over the period.

If sustained, the iron ore prices mean official Australian budget forecasts of $US55 a tonne before shipping (which mean about $US60 landed in China) for 2016-17 could be met. However, most analysts think prices will fall as more supply comes on.

The data from China’s statistics bureau showed June crude steel output rose 1.7 per cent from a year earlier to 69.47 million ­tonnes.

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