Cranes unload iron ore from a ship at a port in Rizhao, China.China Daily/Reuters
Iron ore has carried last year's bullish momentum into the start of 2017, with prices rallying to a two-year high amid speculation that China's demand for overseas ore will hold up even as the world's largest miners bring on new capacity.
Ore with 62 per cent content in Qingdao in China climbed 3.9 per cent to $83.65 (U.S.) a dry tonne, according to Metal Bulletin Ltd. The commodity has risen 6.1 per cent in 2017 after surging more than 80 per cent last year.
Iron ore has more than doubled since bottoming in December, 2015, amid better-than-expected consumption in China after government stimulus. The latest upswing has been supported by signs that policy makers in the world's top steel maker are redoubling efforts to clamp down on outdated mill capacity, lifting steel prices and buttressing iron ore. The advance has come even as banks including Barclays PLC outline the case for weaker prices later in the year and as Brazil's Vale SA starts up output at its largest mine.
"One of the major factors driving iron ore prices at present is the greater emphasis by Chinese authorities on high-end steel products," said Gavin Wendt, founding director and senior resource analyst at MineLife Pty. "The balance of production is shifting toward premium steel products. China requires more imported iron ore from Brazil and Australia to meet its requirements." Earlier in Asia, SGX AsiaClear futures in Singapore jumped as much as 6.4 per cent to $82.12 a tonne, the highest level since October, 2014, as the most-active contract in Dalian soared 7.6 per cent. Rio Tinto Group rose as much as 2.4 per cent in London while BHP Billiton Ltd. added 0.9 per cent.
"Fundamentals do not explain the full price movement since last week and that's why I think speculation is playing the main role," said Di Wang, an analyst at researcher CRU Group in Beijing. Steel and iron ore futures climbed last week after the government vowed to continue capacity-cutting measures.
Figures on Friday showed that China imported a record 1.02 billion tonnes in 2016, up 7.5 per cent from a year earlier, with most cargoes from Australia and Brazil, the world's top shippers. Purchases last month totalled about 89 million tonnes, compared with 96.3 million tonnes a year earlier. More supply is on the way and stockpiles at ports in China are already at a record. In Brazil, Vale has been loading the first ore from its new S11D mine since Thursday, according to North Port operations manager Walter Pinheiro Filho. The $14-billion venture is the industry's largest project.
Iron ore is probably destined to retreat later this year as seaborne supply expands and demand plateaus or eases, according to Barclays. Current levels aren't sustainable, analyst Dane Davis said in a Jan. 12 interview.
"Our key call, and the message we're putting forward, is that the $80 price level does not represent a new normal for iron ore prices, instead it's a temporary blip," New York-based Mr. Davis said in an interview. "I'm an analyst, not a psychic. But I do think over time, demand should start to slow down."