The rally in the price of iron ore showed no signs of going bust on Wednesday with the Northern China benchmark import price staying firmly above $50 a tonne.
The steelmaking raw material was trading at $53.80 per dry metric tonne 62% Fe CFR Tianjin port, down 0.4% compared to last week as traders return from a long weekend holiday in China according to data supplied by The Steel Index. Lower grade 58% Fe fared even better than the benchmark while high-grade lump (ore that can be fed directly into furnaces) premiums also continues to rise.
The commodity remains in a bull market for 2016 with a 25% rise year to date and a 45% surge from near-decade lows reached mid-December.
Observers have been hard-pressed to pinpoint the reason for iron ore strong showing (and theinsane 19.5% one-day rally in early March). The rebound goes against most predictions – Goldman Sachs expects price to average $38 this year (Q1 average is $48) and even the rosier predictions, including from producers themselves, don't see a price above $50.
One explanation for the spike is probably as remote from the business of mining iron ore as you can imagine – horticulture. Tangshan in northeastern China in Hebei province is a mining and steel hub (the photo above is from a steel plant in the city), but in three weeks the city of 7m people will open the International Horticulture Exposition.
Beijing has ordered mills in the area to cut emissions by at least 50% during the duration of the show which incidentally is being built on reclaimed coal and iron ore mining land. The argument goes that Tangshan's steel mills caused the spike in the price as they scrambled to produce as much rebar as possible before the end of April.
Amplifying the price jump and volatility was hedging activity by banks acting on behalf of mining clients looking to lock in those higher prices says Oscar Tarneberg, senior analyst at the The Steel Index. According to Tarneberg derivatives volumes are set to overtake physical for the first time this year after clearing 1.1 billion tonnes in 2015.
Source: mining .com