Iron ore is not sticking to the script, at least for the bears. The commodity that was supposed to be weighed down in 2016 by rising low-cost supply and poor demand has soared 20 percent, establishing a foothold above $50 a metric ton.
The rebound, which means that iron ore has outperformed all the members in the Bloomberg Commodity Index in 2016, has probably been powered by restocking by China mills and some weather-related disruption to shipments from Australia, according to Capital Economics Ltd. These supportive factors may prove temporary, it said.
Iron ore’s upswing has accompanied a revival in the price of other commodities including oil and base metals. Glencore Plc Chief Executive Officer Ivan Glasenberg said on Tuesday that he now sees prices bottoming, and Australia & New Zealand Banking Group Ltd. said in a report on Thursday that sentiment has turned for commodities in the last fortnight, citing gains in both crude and iron ore. Steel prices in China have also climbed.
Iron ore “prices will fall back, maybe before the end of the second quarter,” said Caroline Bain, a London-based commodities economist at Capital Economics. “Chinese steel production could fall quite sharply this year,” while Australian iron ore output will continue to rise, she said in an e-mail.
Tropical Cyclone
Iron ore’s gains this year were supported as a tropical cyclone in January disrupted some shipments from Australia’s Port Hedland, the world’s biggest bulk-export terminal, and as Chinese mills started to ramp up output after February’s Lunar New Year break. This year’s recovery contrasts with three straight year of losses through 2015 that were spurred by rising low-cost supply from the biggest miners including Vale SA in Brazil and BHP Billiton Ltd. and Rio Tinto Group in Australia, and weakening steel demand in China.
Ore with 62 percent iron content delivered to Qingdao advanced 2.1 percent to $52.50 a dry ton on Wednesday, according to Metal Bulletin Ltd. The commodity has rebounded after bottoming at $38.30 in December, the lowest in daily prices dating back to 2009. In February, prices surged 19 percent, the most since December 2012.
Shares Rally
The resurgence has been a boon for miners’ shares. BHP rallied as much as 6 percent in Sydney on Thursday, -- with its rise supported by a legal settlement related to a dam spill -- while Rio added 2.1 percent and Fortescue Metals Group Ltd. surged 7 percent. The trio are Australia’s largest exporters.
Steel demand in China, which accounts for half of global supply, is expected to shrink again this year, while stockpiles of iron ore at ports remain elevated even as prices have climbed. Steel consumption in Asia’s largest economy will contract by another 5 percent this year after a 5 percent drop in 2015, Moody’s Investors Service forecast this week.
Port holdings of ore in China rose 0.2 percent to 95.75 million tons last week to the highest level since May, according to Shanghai Steelhome Information Technology Co. In the past year, inventories have expanded 13 percent.
Source: Bloomberg