The iron ore price has leapt to its highest point in six and a half months, buoyed by a fresh rally in key steelmaking ingredient coking coal, sparking a rally in Australia’s mining giants in offshore trade that could extend to the local session.
Iron ore jumped 2.1 per cent to $US66.80 a tonne overnight, according to The Steel Index, from $US64.70 in the previous session.
The commodity price has eclipsed its April 29 peak of $US65.20 and is now at the highest point since April 21, when it settled at $US68.70 — which was its highest close of 2016 so far.
Iron ore has fallen only once over the past 21 sessions, supported by rising prices for metallurgical coal, as well as speculation on the part of traders that the rally can continue.
In London trade, BHP Billiton shares spiked 4.8 per cent, while Rio Tinto rallied 3.6 per cent. The gains could bode well for the miners when the ASX opens this morning.
Overnight, the benchmark contract for China’s coking coal futures rose by its 10 per cent limit to more than double the price from last month. Prices have been rising as stockpiles remain low, given a new official rule that curbs the amount of days when Chinese coal mines can operate.
Macquarie analysts said that both the coking and thermal coal markets are “substantially short of material” after a 10 to 15 per cent fall in Chinese coal production over the year to date.
“[This] has led to significant destocking, only some of which is visible in published data,” Macquarie said in a research note.
“Imports have risen, but only modestly due to a lack of short-term seaborne supply flexibility.
“Any normalisation of the coal markets will come down to China, where the domestic market is 2.5 times the size of the whole seaborne market.”
Source:The Australian