The Commonwealth Bank reckons it's pinpointed why iron ore has being going nuts this week

Photo credit should read SERGEI VENYAVSKY/AFP/Getty Images

Iron ore is going nuts right now.

The benchmark spot price has jumped by close to 10% this week, and futures even more.

It’s been a rapid recovery after an equally large decline just one week earlier.

Many factors have been cited to explain the sharp and sudden turnaround, ranging from fundamentals to Chinese speculators and everything in between.

Vivek Dhar, mining and energy analyst at the Commonwealth Bank, is the latest to weigh into the debate, suggesting that strength in steel and coking coal prices has led to further restocking of medium and high-grade iron ore.

“Iron ore continued to track higher as stronger steel prices spurred iron ore buying,” he says.

“Restocking demand for medium and higher grade ores helped prices higher too. Higher grade ores allows steel mills to limit their coke usage, which means a smaller exposure to high coking coal costs.”

Clearly fundamental factors.

Looking ahead, Dhar believes fundamental factors will continue to be influential, albeit not the same as those that have driven the recent price action.

“Steel demand conditions usually worsen as construction activity slows during winter months, which could potentially weigh on iron ore prices in coming weeks,” he says.

However, that risk is counteracted, he says.

“Chinese iron ore production holds the key though, as output levels also decline during winter.”

The spot price for benchmark 62% fines rose to $76.93 a tonne on Thursday, according Metal Bulletin, extending its gain in 2016 to 76.6%.

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