SINGAPORE, April 28 (Reuters) – Now that the euphoria of iron ore’s all too brief rally has evaporated, the question the market is grappling with is what is a fair price level for the steel-making ingredient.
Spot iron ore prices in China <.IO62-CNO=MB> ended Thursday at $66.42 a tonne, down 30 percent from the 17-month peak of $94.86 reached on Feb. 21. The problem for industry participants is how to wrestle with the factors that have driven, or are likely to drive, prices for the rest of the year.
The traditional method of looking at the supply-demand balance and assessing the cost of marginal supply does provide a starting point. But if there is one thing that the market has learnt in the past year, it’s that the main driver of the market is policy decisions in China, and how participants react to them.
The nearly 150 percent rally between the low of $38.52 a tonne on Dec. 10, 2015, and the peak in February caught most observers by surprise as it was largely driven by Beijing’s decision to add stimulus to infrastructure spending and construction, the major demand centres for steel in the world’s largest producer and consumer of the metal.
This year the expectation is that Beijing will wind some of the stimulus back, thereby trimming demand growth for steel and iron ore.
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