Iron ore prices rose to $140 a tonne on Monday, the highest in almost a month, as rising optimism among Chinese traders spurred a 20 per cent rebound in just two weeks.
The price of iron ore, the main ingredient in steel, had tumbled 36 per cent from early September to a low of $116.75 at the end of October. Chinese steelmakers, who account for 60 per cent of the internationally traded market, had halted their purchases of iron ore in the spot market amid concerns about an economic slowdown and tight credit conditions in the country.
Since then, however, the price of steel in China has rebounded and traders say import financing has become easier to obtain, helping to spur the rebound in prices. Moreover, analysts believe the drop below $140 took prices to a level where many Chinese mining operations are unprofitable.
On Monday, benchmark Australian iron ore – with 62 per cent iron content – rose to $140 a tonne, according to Platts, up 1.8 per cent from Friday and 20 per cent since late October.
The price of iron ore is critical to mining and steelmaking. The rebound in prices bodes well for the leading iron ore miners Vale of Brazil, Rio Tinto and BHP Billiton, after the sharp drop dented confidence in the sector.
However, some analyst and industry executives fear that the rebound may soon have run its course.
Rob Clifford, mining analyst at Deutsche Bank, said he was “wary in the short term”, arguing that any credit loosening in China would mean that shipments waiting in Australia and Brazil would be moved to Chinese ports, creating a temporary glut.
Others believe that the disruption to supply chains, particularly of the Japanese auto industry, caused by the flooding in Thailand could knock Japanese steel production, and so iron ore demand.
Finally, the macroeconomic worries that have been driving sentiment across financial markets are unresolved, with Italy’s future in the eurozone far from clear.
Ric Deverell, head of commodities research at Credit Suisse, predicted that prices would stabilise at around $145-$150 a tonne.
“Everything we’re hearing from the physical world is things have tightened further; traders can now get finance,” he said. However, he added that he would “be tempted to take profits” should prices rise much further.
