Something is up in the iron ore market and it’s good news for Australian miners and Joe Hockey’s budget to be delivered on May 12.
Since bottoming on April 10, September Dalian iron ore futures have rallied 11%. A large chunk of that last night with the price up around 16 points from where it was late yesterday afternoon as Australian markets closed to settle at 414.5 for the September contract – up 3.24%. That’s a bigger rise than the Nymex futures or the China 62% fines import price, says Ray Attrill, NAB co-Head of Global FX Strategy.
But Attrill told Business Insider he believes the recent bounce in prices is being fuelled by some production news with “BHP extending the timeline for its expansion plans”.
Certainly something has changed in the iron ore market with sentiment clearly much better than it was a few weeks back when Fortescue Metals (FMG) failed to find a bid for its $US1.5 billion debt issue. On Wednesday night not only did FMG get the deal away but it was upsized to $2.3 billion.
BC Iron shares closed yesterday up 53.85% to $0.40 and this morning FMG is up another 3.35% at $2.18 – that’s a long way from the closing low of $1.775 – roughly 23%.
The question: is this the start of something bigger in iron ore, is a sustainable bottom in or, as Sean Callow from Westpac told Business Insider, is this just reflective of market talk that “Chinese mills are scrambling to restock which is likely exacerbated by recent concerns that May cargoes were looking scarce”.
Joel Crane, Commodity Strategist at Morgan Stanley in Melbourne, agreed that part of the rally was restocking and that often in the past “once a couple of mills/traders start buying, everyone piles in to get the “cheapest” near-term deal”.
He said that along with the PBOC liquidity injection this week this means it is “not altogether surprising we’re seeing a small pickup in prices after the recent rout”. That means “the price is just normalising after overshooting. We expect the price to avg US$55/t this quarter”.
That’s good news for miners and great news for Joe Hckey who recently said iron ore had no bottom.