China Photos, Getty Images
Industryweek 10379 021916chinesemillsteelironorechinaphotos
Industryweek 10379 021916chinesemillsteelironorechinaphotos
Industryweek 10379 021916chinesemillsteelironorechinaphotos
Industryweek 10379 021916chinesemillsteelironorechinaphotos
Industryweek 10379 021916chinesemillsteelironorechinaphotos

Is Iron Ore Making a Comeback?

Feb. 19, 2016
A dry metric ton is trading at its highest price in more than three months, and “the market has become more optimistic about iron ore and steel demand.” Can the price rally be sustained?

Iron ore prices climbed to their highest point in three months as steelmakers in China start to boost output after the Lunar New Year break and the biggest miners post slower growth in supply. It is safe to say that, yes, iron ore is making a comeback — albeit a quiet one, for now.

Ore with 62% content rose 2.9% to $48.52 a dry metric ton on Friday, the highest since Nov. 11, according to Metal Bulletin Ltd. The raw material advanced 11% this week. The resurgence has helped to lift miners’ shares, with Fortescue Metals Group Ltd. up 23% in Sydney since Monday.

The recovery contrasts with the run of three annual declines to 2015, when surging low-cost production from the world’s biggest miners including Rio Tinto Group, BHP Billiton Ltd. and Brazil’s Vale SA spurred a glut. China’s steel mills, which account for about half of global supply, may increase production after the Lunar New Year break, supporting demand for iron ore, according to Sinosteel Futures Co.

“The market has become more optimistic about iron ore and steel demand in the coming weeks as manufacturing activity generally improves after the winter,” said Zhao Chaoyue, an analyst at China Merchants Futures Co. “Still, these are merely expectations. Whether the price rally can be sustained would hinge on downstream demand for steel.”

Vale reported quarterly supply figures Thursday that showed a drop from the previous period, trailing analysts’ estimates. On the year, fourth-quarter output from the Rio de Janeiro-based company rose less than 3%.

“The lower output from Vale in the fourth quarter is a signal that supply growth has slowed, which bolsters sentiment,” Zhao said.

While iron ore has rebounded, it’s still trading at a quarter of its 2011 peak and the World Bank has predicted that prices might post the biggest loss among metals this year. The seaborne surplus is estimated at 45.8 million tons this year and 34.1 million tons in 2017, according to Morgan Stanley.

Liberum Capital Ltd. is skeptical that the rally will last and advised investors this week there is now an opportunity to bet against miners. Whilst the expected rate of growth in ore supply has moderated, it remains significant, particularly in the face of a declining demand environment, Liberum said.

BHP rose to 728.50 pence in London from last Friday’s close of 696.60 pence while Rio stock rose 1% this week. In Sydney, Fortescue ended at A$1.99 on Friday after gaining to A$2.10 on Thursday, the highest intraday price since November. The trio are Australia’s largest shippers.

By Jasmine Ng

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!