The iron ore price has surged to its highest point in two years, but traders are wondering how much longer the gains can last.
Iron ore added 4.5 per cent to $US74.20 a tonne overnight, according to The Steel Index, from $US71 yesterday. The winning run now extends to a stretch of 24 sessions with only one fall.
The fresh jump takes the commodity to its highest level since November 17, 2014, when it settled at $US75.10, spending much of 2014 in free fall after opening the year at $US135 a tonne.
Iron ore has been buoyed this year by hopes of fresh investment in Chinese infrastructure, but the most recent rally has been linked to a spike in the price of coking coal, another key steelmaking ingredient, and exacerbated by speculation.
Since reaching a trough of $US37 in December last year, iron ore has now more than doubled.
But Dalian iron ore futures, which have also been pushing higher, were starting to level off last night, which could bode ill for the commodity’s rise.
Similarly, despite a strong showing on the ASX yesterday, Australia’s major miners traded more modestly in London overnight. The commodity gains were not enough for BHP Billiton to find buyers, with the stock closing 0.1 per cent lower, while Rio Tinto gained 2.6 per cent, much less than its spike the previous day.
Despite moderating growth in iron ore supply, most analysts are still warning that the market is oversupplied and current prices are unsustainable.
UBS research noted a slight decline in iron ore shipments from Port Hedland in October, which fell 1 per cent from September, although it has risen 14 per cent from a year earlier.
“The sequential decrease [was] reflecting a soft month for BHP and a pull back from high levels for FMG,” UBS said, adding that Rio Tinto’s shipments still rose in the month.
FAS Price at posting:
0.4¢ Sentiment: Sell Disclosure: Held
