Iron ore’s largest one-day gain in nine months has pushed the bulk commodity back to levels seen before March’s “flash crash”.
Improving emerging market sentiment and increased hopes of stimulus in China saw iron ore lift 4 per cent overnight The benchmark iron ore price, a measure from the port of Tianjin in China, has risen 5.7 per cent in the last week, now sitting at $US116.90 ($126.22).
Iron ore, emerging markets and riskier assets, in general, have had a strong run in the last week, Deltec chief investment officer Atul Lele said.
The MSCI Emerging Markets Index has jumped 4.2 per cent in the last week.
Cheap valuations in emerging markets, hopes of stimulus in China and hopes of further liquidity injections globally, are all supporting iron ore and riskier assets, Mr Lele said.
The recovery in iron ore comes after a “flash crash” three weeks ago, which saw the metal plummet more than 8percentinone day. The fall was attributed to financial arrangements which used iron ore as collateral being unwound. However, analysts said investors should not expect a return to levels above $US130 per tonne.
“At present, none of the indicators suggest that we’re going to see a strong resurgence in the iron ore price. But that’s not withstanding any stimulus that comes through from China aimed at fixed asset investment” Mr Lelesaid.
Expectation of increased investment in infrastructure from the Chinese government to prevent the economy from slowing were reflected in the jump in iron ore and steel prices.
China rebar steel futures gained 1.1 per cent overnight and have added 3.7 per cent in the last week.
Liquidity concerns over commoditybased finance deals in China have eased and iron ore is returning to fundamentals, CLSA analyst Andrew Driscoll said. “Most important over the last couple of weeks, and there was a data point yesterday, steel inventory at the mills has been ticking down,” Mr Driscoll.
“The mills are selling steel into the market and the steel price is holding up OK,
suggesting that the demand is there for the steel.” On top of the hopes of stimulus, expected seasonal upturn in steel consumption was helping the iron ore price, ANZ head of commodity research Mark Pervan said.
“The gains were despite a further rise in port inventories last week; however,
the 38 kilo tonne build last week was the smallest in several weeks,” he said.
“Talking to the industry in the last couple of weeks, these guys are now thinking we’ve probably hit the bottom of the iron ore market and are looking to reposition. However, they’re probably waiting for slightly better seasonal demand to kick in.” Any increase in iron ore prices will need to be backed up by a jump in steel consumption. Infrastructure and property are the biggest consumers of steel in China, accounting for around 67 per cent of consumption.