CANBERRA: Iron ore prices have shot up to their highest level in two-and-a-half years as Chinese imports of the commodity surged in a data release on Friday. According to numbers from The Steel Index, the commodity’s value rose 4.6 per cent to $US87 a tonne on Friday night, up from $US83.20 the session prior. he best reading since 2014 came as it was revealed Chinese imports of iron ore jumped 12 per cent, on an annual basis.
Australia’s key export has been on a tear since this time last year when it slumped to a 10-year low of around $US38 a tonne. At that time few analysts projected a figure in the $US60s before 2018 and the prospect of $US80 or more seemed far-fetched given modest demand from China and a sharp uptick in supply. Supply growth temporarily stalled as mid-tier and junior miners pulled back, while the giants of the sector slightly slowed their expansion plans. At the same time, Chinese demand began to tick up, aided by stimulus measures out of Beijing, while speculative trading and the election of Donald Trump has further fuelled the strong showing over the past six months. It has left analysts scrambling to upgrade forecasts, but the pessimistic view in the medium-term remains entrenched. Among the more recent outlooks, Ord Minnett raised its 2017 price forecast by 21.7 per cent to $US73 a tonne. At current prices, the commodity is 19 per cent above this projection. In its note last week, Ord Minnett said it anticipated prices to hold around current levels for the first half of this year, before fading as higher prices stir a supply response. “Key iron ore and steel indicators remain generally positive, and there are few identifiable catalysts for iron ore to correct materially lower over the near term,” the note read.
“Tight supply-demand conditions are likely to persist through the first half, but iron ore above $US80 a tonne will eventually incentivise additional supply to come online, which could remove some of the current pricing tension.” Signs of rising supply are already being seen, with local minnow Mt Gibson last week giving the final go-ahead to a new mine that will begin producing in May. Ord Minnett expects such actions to become commonplace in the near-term, potentially leading the commodity back into the $US60s as Chinese property sector demand also cools.