While some have gone on to say that the recent surge in iron prices isn’t sustainable, it appears that the metal still has quite a long way to go as it shows no signs of slowing down.
Iron ore futures, especially in China, have hit their highest levels in almost seven years as upbeat demand for the world’s largest producer and consumer of steel continues to push up prices of the industrial metal.
The most-popular September iron ore contract on the Dalian Commodity Exchange in China surged as much as 4.6 percent on Tuesday, ending the day at $134.48 per tonne. So far, Dalian iron ore has risen by a massive 108 percent in 2019.
Earlier gains were driven predominantly due to supplies issues thanks to a number of facility shutdowns by Vale (NYSE: VALE), the world’s largest iron miner. Coupled with poor weather in western Australia which backlogged shipments ended up pushing the price of iron to over $100 per tonne.
However, this current surge in iron price is stemming mostly from within China itself. Data released on Monday showed that the nation’s industrial output growth hit 6.3 percent in June, beating what many analysts had forecast.
The nation had been showing weak manufacturing data for quite some time, with many experts worrying that a global recession could be coming on the horizon. However, whether it be the recent resumption of trade talks with the U.S. or another factor, manufacturing has seen a mild recovery for China, if only for the short term.
“The increase in production especially in commodities has resulted in some increase in inventory. It also reflects producers’ confidence (over demand prospects),” said Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong. She added that “we remain positive about iron ore,” as well as other steelmaking ingredients like coking coal.
This rally came just days after China’s top steel companies asked the government to help keep the market stable by investigating, and possibly mitigating, factors that have caused the surge in prices.
Over a dozen representatives from a number of major steel mills and government departments have met to discuss the issue as volatile prices for steel making ingredients could jeopardize the consistent economic growth the nation’s government is trying to achieve. At the same time, inventory of imported iron ore at China’s ports is at it’s lowest levels seen in over two years.
Many market analysts have warned that iron’s sky-high prices are unjustified in the long term and that a correction should come sometime this year. Vale’s production cuts have been diminishing as the iron ore producer is reopening a number of their facilities. With an increase in the global supply coming, it’s expected that this will exert some downward pressure on iron prices.
Regardless of what other companies do, China will always remain the X factor when it comes to iron demand, alongside other industrial metals such as copper, aluminum, and more. As long as demand remains strong in China, the price for these metals will remain high regardless of how many times analysts saw a correction is in order.
