Iron ore keeps getting told the end is nigh: so far in 2017, the response has been the end’s just another high. The rally has been powerful enough to push futures in China back to $100 a metric ton as spot prices trade at levels last seen in 2014, boosting miners’ shares.
On China’s Dalian Commodity Exchange, most-active futures surged as much as 8.3 percent to 694 yuan ($101) a metric ton and settled at 688 yuan, while Singapore’s SGX AsiaClear contract also climbed. Spot ore with 62 percent content in Qingdao advanced 3.3 percent to $86.62 a dry ton, the highest since September 2014, according to Metal Bulletin Ltd.
Iron ore rallied in 2016 as China added stimulus, supporting steel production and confounding bears who’d highlighted prospects for additional low-cost output and concerns that the top buyer wouldn’t be able to absorb the supply. The same dynamic has been at play in recent weeks, with banks including Goldman Sachs Group Inc. flagging risks of weaker prices over the course of 2017 even though near-term support was seen as strong. Friday’s gain came amid optimism about the immediate outlook for consumption.
“Construction demand is returning, with developers reportedly buying steel now even if they have not resumed construction on certain projects,” Tomas Gutierrez, an analyst at consultancy Kallanish Commodities Ltd., said in an e-mail. “The second half of the year is likely to contain surprises and lower prices, but for the moment traders and steelmakers plan to make the most of a relatively strong market in the coming weeks.”
Miners’ shares are benefiting from the rally. Rio Tinto Group, which this week reported its first profit gain since 2013, jumped as much as 3.5 percent in London, while Vale has climbed 26 percent in 2017. In the U.S., Cliffs Natural Resources Inc. surged 19 percent on Thursday, the most since May.
Data from China on Friday pointed to robust local demand for iron ore, as well as steel, as imports of the raw material rose while overseas sales of steel fell. Iron imports gained 12 percent to 92 million tons in January from a year ago, according to customs data. Sales of steel were at the lowest since 2014.
With stockpiles of iron ore at China’s ports at a record and miners including Brazil’s Vale SA bringing on new supply, Liberum Capital Ltd. is among forecasters seeing lower prices, predicting a drop back below $50 in the second half. Citigroup Inc. has said it sees a sharp correction, while top forecaster RBC Capital Markets described prices in January as unsustainable.
Not everyone is bearish. Prices may average $73 this year, according to JPMorgan Chase & Co., which sees them at $71 in the third quarter and $66 in the final three months. Last month, Singapore Exchange Ltd., which operates derivatives contracts that help to set global prices, said a survey of industry participants showed most expected rates to hold firm or gain.
— With assistance by Martin Ritchie, and Ranjeetha Pakiam