Now here’s a chart that will undoubtedly embolden the iron ore bulls out there.
Posted by Robert Rennie, Westpac’s head of market strategy, on Twitter today, it shows the iron ore spot price overlaid against spot prices for rebar, hot-rolled and steel billet product.
One thing immediately stands out: the relationship between steel and iron ore prices has broken down over the past year with steel prices jumping to six-year highs while iron ore remains anchored near one-year lows.
Rennie says that high steel prices, leading to elevated steel mill margins, will make it hard for iron ore prices to fall much further should they stay at current levels.
“As long as these super high steel prices remain in China, it’s hard to generate a scenario where iron ore can fall much,” he says.
Adding credence to that view, iron ore spot markets — after a period of choppy trade in recent months — surged higher on Wednesday, hitting the highest level since September 21.
The price for benchmark 62% fines surged by 4.3% to $65.17 a tonne, according to Metal Bulletin, its largest increase since November 6.
The move followed another strong lift in rebar futures in Shanghai earlier in the session, boosted by low inventory levels and optimism over continued strong demand.
For those looking for further information, Rennie appeared on Business Insider’s Devils and Details Podcast earlier this month to discuss the outlook for iron ore markets. The section specifically focused on iron ore is found towards the end of the show.
You can also follow him on Twitter here.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.