Iron ore rallied solidly into the $US70 a tonne range as Chinese steel futures surged, with local mills seen continuing to produce at high rates to take advantage of strong profit margins.
The spot price of iron ore rose $US2.57, or 3.7 per cent, to $US72.68 a tonne on Monday, according to Metal Bulletin – its highest since mid September. The steelmaking raw material – which advanced 2.9 per cent on Friday – has now risen more than 20 per cent from late October. Iron ore continues to defy forecasts that it will reverse into the $US50 range as global supply slowly rises and China’s economy gradually slows.
“We think that the latest gains in the iron ore price are a knee-jerk reaction to soaring steel prices, rather than a reflection of iron ore’s fundamentals,” said Caroline Bain, chief commodities economist at Capital Economics.
“We expect prices to slip back from around $US70 per tonne now to close to $US60 per tonne by end-year and $US55 per tonne by end-2018,” Ms Bain also said.
At least for the immediate future though, Rio Tinto, BHP Billiton and Vale among others are poised to profit from demand for their higher grade iron ore which generates less pollution when used to make steel. That’s one reason why Fortescue Metals Group last month shifted towards more higher grade ore.
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