Iron ore opens 2017 with a bang on higher Chinese consumption

Bloomberg

Iron ore has carried last year’s bullish momentum into the start of 2017, with prices rallying to a two-year high amid speculation that China’s demand for overseas ore will hold up even as the world’s largest miners bring on new capacity.
Ore with 62 percent content in Qingdao in China climbed 3.9 percent to $83.65 a dry metric ton, according to Metal Bulletin Ltd. The commodity has risen 6.1 percent in 2017 after surging more than 80 percent last year.
Iron ore has more than doubled since bottoming in December 2015 amid better-than-expected consumption in China after government stimulus. The latest upswing has been supported by signs that policy makers in the world’s top steelmaker are redoubling efforts to clamp down on outdated mill capacity, lifting steel prices and buttressing iron ore. The advance has come even as banks including Barclays Plc outline the case for weaker prices later in the year, and as Brazil’s Vale SA starts up output at its largest mine.
“One of the major factors driving iron ore prices at present is the greater emphasis by Chinese authorities on high-end steel products,” said Gavin Wendt, founding director and senior resource analyst at MineLife Pty. “The balance of production
is shifting toward premium
steel products. China requires more imported iron ore from Brazil and Australia to meet its requirements.”
Earlier in Asia, SGX AsiaClear futures in Singapore jumped as much as 6.4 percent to $82.12 a metric ton, the highest level since October 2014, as the most-active contract in Dalian soared 7.6 percent. Rio Tinto Group rose as much as 2.4 percent in London while BHP Billiton Ltd. added 0.9 percent.

PRICE GAINS
“Fundamentals do not explain the full price movement since last week, and that’s why I think speculation is playing the main role,” said Di Wang, an analyst at researcher CRU Group in Beijing. Steel and iron ore futures climbed last week after the government vowed to continue capacity-cutting measures.
Figures on Friday showed that China imported a record 1.024 billion tons in 2016, up 7.5 percent from a year earlier, with most cargoes from Australia and Brazil, the world’s top shippers. Purchases last month totaled about 89 million tons, compared with 96.3 million tons a year earlier.More supply is on the way, and stockpiles at ports in China are already at a record. In Brazil, Vale has been loading the first ore from its new S11D mine since Thursday, according to North Port Operations Manager Walter Pinheiro Filho. The $14 billion venture is the industry’s largest project.
Iron ore is probably destined to retreat later this year as seaborne supply expands and demand plateaus or eases, according to Barclays. Current levels aren’t sustainable, analyst Dane Davis told Bloomberg in a Jan. 12 interview.
“Our key call, and the message we’re putting forward, is that the $80 price level does not represent a new normal for iron ore prices, instead it’s a temporary blip,” New York-based Davis said in an interview. “I’m an analyst, not a psychic. But I do think over time, demand should start to slow down.”