Iron ore prices look set to soar

Ross Land/Getty Images
  • Chinese markets are closed until next week for Lunar New Year Celebrations.
  • Credit Suisse says prices should soar when Chinese markets reopen, suggesting “three digits looks within reach”.
  • The benchmark iron ore price has already rallied 33% since late November, leaving it sitting at $85.53 a tonne.

Holidays are underway in China, keeping activity in iron ore spot markets at a minimum.

Credit Suisse doesn’t expect it will remain that way for long, suggesting prices will soar as Chinese markets reopen next week.

“We have been concerned about the lack of rebuild of port stocks in China,” says Matthew Hope, Research Analyst at Credit Suisse, in reference to the current level of iron ore inventories stored at Chinese ports.

“Next week, iron ore restocking ahead of the Spring construction season should begin. With port stocks remaining depleted, bidding for spot cargoes by port traders may be strong to replenish depleted trading stocks.

“On top of this, the market now has a force majeure declaration from Vale for the 30-35 million tonnes per annum of Brucutu ore that was stopped by a court order. The buyers affected may well have to turn to spot cargoes also, so bidding could become highly competitive and see the prices run higher.”

Given that combination, Hope says the benchmark iron ore price should soar as Chinese markets reopen, suggesting that “three digits looks within reach”, mirroring similar views expressed by the Commonwealth Bank earlier this week.

Like many other analysts, Hope says there’s still far too much uncertainty to determined just how long any potential price spike will last.

“The Brazilian disaster has greatly increased upside risk to iron ore prices. However, this story is still underway, with new developments almost daily, so it’s still too early to estimate how high prices may go.”

On Wednesday, the spot price for benchmark 62% iron ore fines stood at $85.53 a tonne, according to Metal Bulletin.

The price has already rallied 33% since November 26 last year. Gains for lower grade ore have been even larger with the price for 58% fines jumping 60% over the same period.

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