Is the iron ore rally sustainabl?
The Chinese government& clampdown on speculative trade will weigh on iron ore, says Minelife's founding director and senior resource analyst, Gavin Wendt.</p>
China plans to invest CNY4.7 trillion ($720 billion) on 303 transport infrastructure projects over three years but that may not be enough to give a strong boost to commodity prices in an oversupplied market.
On the back of expectations for infrastructure construction and a strong property market, iron ore prices have rallied as much as 86 percent from its record low in December, although prices have eased somewhat in recent days.
Any optimism from recent run-ups may be misplaced as investors come to the realization that there is still too much supply as growth in China slows, some analysts say.
Despite the huge headline figure for government infrastructure investment, the amount is a "major drawdown despite recent years," said IHS Global Insight's China economist Brian Jackson.
After all, China invested just over CNY4 trillion in similar transport infrastructure categories in 2015 alone, so the three-year infrastructure plan recently announced represents a nearly two-third reduction in total transport investment if not complimented by additional projects, he added.
"As always in China, the enormous size of the economy makes any spending figure seem astounding, but on its own, the data is of limited value for those assessing macroeconomic or even sector-level growth," he said in a note on Friday.
Platts' editorial director Annalisa Jeffries said with large iron ore supplies coming on stream, the market is looking at prices around $40 a ton in the longer-term, although prices are likely to have found a floor at $50 a ton in the short-term.
Source: CNBC
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