Iron prices reach new 5-year high as Chinese demand soars

Iron ore

While commodity investors might be focused on precious metals right now, such as gold and silver, which have shot up in value due to the ongoing uncertainties in the global markets, there are other metals that have seen incredible gains as well. One of which is iron, whose prices have shot up to fresh, five-year highs following news that the Chinese government would be implementing a stimulus plan focused on infrastructure development across the country.

Iron prices shot up to $130 per ton, up 6.5% so far this week and up around 40% so far this year. The last time iron prices were this high was back in 2014, making this an excellent time for iron miners to make a profit. Many investors might remember that iron prices shot up substantially back in early 2019 when mining giant Vale (NYSE: VALE) had to close its large iron mines in Brazil due to a fatal dam collapse that killed hundreds of people. Since then, however, output has been slashed once more due to the coronavirus. As such, iron supplies have dwindled once again, which have helped prices rise once more.

However, it was the Chinese government’s decision to undergo a massive infrastructural upgrade project, which has sent iron prices soaring even higher. Beijing has decided to invest hundreds of billions of dollars in a fiscal stimulus project to help its economy bounce back. In turn, the expected demand for iron has sent prices rising to fresh highs. According to customs data from July, China had imported around 113 million tons of iron ore, which is already up 24% from last year and likely to continue to grow in the upcoming months.

Continued concerns over Brazil’s iron ore supply, as coronavirus cases and deaths continue to plague the country’s mining regions, have boosted iron ore prices along with strong Chinese demand as steel production has started to heat up with the country’s V-shaped recovery,” read a report from Fitch Solutions, a market research firm, which was published earlier this month. “Bulk commodities continue to benefit from infrastructure investment in China. Steel production has been surprisingly strong and improving steel mill margins should keep the output resilient in the short term,” wrote analysts from ANZ.

However, many mining analysts don’t think this price hike is sustainable in the long term. Even Vale itself went on to say that it expects iron ore output to resume sometime this year. The mining company also stated that it might be resuming dividend payments as well to shareholders, a promising sign that business could be returning to usual once again. Shares of the iron miner have done reasonably well so far this month, but are still down a fair bit since the beginning of the year.

China has historically been one of the largest consumers of industrial metals around the world. This includes iron and steel, but another major metal is copper, with China being the top copper consumer in the world. On the flip side, China happens to be the largest producer of rare-earth metals, which are used in defense manufacturing as well as in making certain electronics.