Iron ore is rallying hard for a second day

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Iron ore futures are rallying for a second consecutive day.

The most actively traded contract on the Dalian Commodities Exchange has jumped a further 3.2% today, taking the two day gain to more than 6%. That’s decent gain even when compared to Chinese stocks lately!

While the commodity remains in a clear down trend – it has fallen 35% since September last year – the timing of the rebound is remarkable, and to be frank, a bit ironic.

It was only Friday that Atlas Iron made its decision to start mothballing production at its Pilbara operations because of the pressure on its margins.

And yesterday federal Treasurer Joe Hockey warned of further fiscal pressures from the continued slide in the iron ore spot price, suggesting company tax receipts would continue to undershoot forecasts, warning prices could eventually falls to as low as US$35 per tonne.

At $US48.82, the closing price overnight, that would represent a further decline of $28.3%.

While certainly not out of the realms of possibility, particularly given the amount of global supply that will come on in the years ahead and forecasts for slowing steel production in China, it appears the commodity is finding renewed support after months of relentless selling.

Whether this can be sustained is highly debatable but, talk of $35 iron ore, a bearish forecast compared to current consensus, may well mark a turning point for the commodity.

The question, like that being posed by many following Chinese stocks of late, is whether the gain can be sustained on the mere hope for additional monetary and fiscal stimulus in China.

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