Spot ore in Qingdao has jumped for nine of the past 10 weeks in a sustained advance after bottoming at $53.36 a dry metric ton on June 13, and the benchmark is now back in positive territory for 2017, according to Metal Bulletin.
The commodity was at $79.65, near a four-month high.
Iron ore has surged since mid-June on rising demand from China, with mills in the world’s top user benefiting from rising product prices and strong profit margins, and the advance has supported miners including BHP Billiton. Bank of America Merrill Lynch’s Francisco Blanch says that some of the gains in iron ore have come as China’s policy makers pave the way for a key political meeting later this year, an effect that’s liable to fade after the gathering ends.
“We don’t see this being a sustained rally because there’s plenty of iron ore capacity that can come online if prices stay this high for more than a few months,” Blanch, the bank’s global head of commodities research, said in a phone interview on Monday. “The market is likely to retrace.” He sees prices averaging $60 next year, down from $75 in 2017.
“Prices are signals, and the signal is China’s growth is accelerating, Asian growth is accelerating, emerging growth is accelerating,” said Blanch, noting a “big bump” in iron, as well as some other commodities. “But I would think past the end of the year, we’d see a retracement in iron ore because some of the accelerating growth in China is going to the Communist Party congress.”
After reporting a jump in profit, BHP chief executive officer Andrew Mackenzie told Bloomberg TV on Tuesday the miner’s more optimistic about China amid efforts to reform the economy, which are aiding demand.
While prices are a little bit higher than expected, “we don’t see them falling back to anything like some of the lows we’ve seen more recently,” he said.
China is the center of gravity in the iron market as its mills account for half of world steel supply and are the largest importers of ore from Australia, Brazil and smaller producers.
Steel production has expanded to a record this year, and overseas ore purchases are on course to comfortably exceed 1bn tons.
The rally has brought expectations for rising global production back into view, with UBS Group saying in an August 17 note there’s now an incentive for miners, including those in China, to increase output at the same time new supply ramps up from Vale’s S11D, and Roy Hill Holdings in the Pilbara.
Exports from Australia and Brazil may increase by a combined 60mn tonnes next year to 1.29bn tonnes, and rise a further 23mn tonnes in 2019, according to the Australian government forecaster.
Goldman Sachs Group has said it remains bearish on 2018 amid prospects of a worldwide glut.
RBC Capital Markets predicted this week prices will probably hold above $70 through to the year-end, adding that it expects the advance to prompt upgrades of forecasts from across the board.
And BNP Paribas has said a new in-house quant model still values iron ore at $76.80 even as it’s closed out a bullish bet for a double-digit gain.