White-hot iron ore will cool
The price of iron ore looks “unstoppable”. But the rally may have gone too far.
Iron ore looks "unstoppable", says David Scutt on Business Insider. One of the main ingredients in steel production, iron ore, was at a record low of $39 a tonne last December, but has since soared by 115% to a two-year high above $80 a tonne. Chinese imports rose to the third-highest monthly total on record in November, partly because the high price of coking coal, another steel ingredient, prompted Chinese steelmakers to opt for imported, higher-grade iron ore instead, as Capital Economics points out. Stronger Chinese steel output, a result of the economic upturn in recent months, has also helped.
But the rally appears to have gone too far. Global supply growth has been restrained of late, but now more iron ore is coming to market from a big new mine in Brazil, notes Reuters. On the demand side, China's reluctance to build up too much more new debt may prompt it to remove stimulus next year.
What's more, as Wayne Gordon of UBS told Business Insider, much of the surge reflects Chinese speculators pouring in they are ignoring very high inventories in their local market.
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