The spot price of iron ore appears headed toward a bull market on optimism about Chinese demand for higher grades of the steelmaking material.
So far this month, ore with 62 per cent iron content quoted by Metal Bulletin has risen 15.7 per cent, including a 3.9 per cent leap to $US67.69 a tonne on Thursday. It surged 4.3 per cent on Wednesday. The latest price swing is in keeping with a volatile year.
The latest rally appears to be underpinned in part by China’s push to curb pollution from now through March by closing less efficient steel mills in particular those in the northern part of the country. One result is that mills are using more higher grade, less polluting imported iron ore to maintain output.
In addition, prices are starting to reflect expectations that demand for steel will rise from March when supply is forecast to be low because of the enforced winter production cuts.
“Chinese steel inventory is very low heading into winter cuts … with current inventories only 14 per cent higher than the all-time low in December last year,” according to Citigroup analysts in a report that questions whether inventories could drop to a record low in China as early as next month, which would be “supportive” of both steel and iron ore prices.
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