So how long will it last? Goldman Sachs believes it will be short lived – but the current rally in iron ore took off yesterday jumping 19% on hopes the new Chinese five year plan and other policy moves will mean higher deficit spending and investment.
Iron ore prices have already surged more than 50% from the lows of December, as Chinese mills have raced to snap up supplies.
The Australian dollar didn’t respond to the news, trading around 74 and a half US cents offshore, while our market will be heading for a seventh day of gains today with a near 40 point rise on the overnight futures market.
Yesterday’s surge lit up on the two main measures for iron ore- the Steel Index and the Metal Bulletin.
The price for physical iron ore for delivery to China rose to $US62.60 a tonne on Monday, according to the Steel Index — the largest one-day rise since the index began in 2009.
And ore with 62% delivered to Qingdao jumped 19% to $US63.74 a dry tonne, according to the Metal Bulletin.
That was also the largest daily rise going back to 2009 and the highest price since June.
Bloomberg said the jump was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange climbing 21% to $US60 and prices on the Dalian Commodity Exchange.
If the move can be sustained, it could add billions of dollars to the bottom line of the world’s largest such as BHP Billiton, Rio Tinto, Vale, Fortescue Metals, Arrium, Atlas Iron, BC Iron and others.
Iron ore had been widely expected to remain depressed this year, thanks to, with the global market oversupplied and slowing Chinese demand.
Instead, it has risen 46% so far this year and is up 70% since hitting a record low of just over $US38 a tonne in December.
BHP shares ended up more than 5% yesterday on the ASX at $18.55. That was after a 13% plus surge last week on the ASX and a 9% rise on the London market on Friday night.
Shares in rival Rio rose 3.1%, while Fortescue Metals shares jumped more than 23% yesterday, following BHP higher. Arrium shares leapt 33% to 24 cents here yesterday.
In London Rio shares jumped more than 5%, BHP shares were up 3.4% overnight.
Goldman Sachs said in a report yesterday that it expected the rally to be short-lived “in the absence of a material increase in Chinese steel demand”.
“We are yet to find evidence of higher-than-expected steel demand — whether in the order books of individual steel producers or in the official data for new orders,” the bank said.
"Based on the information currently available, the seasonal increase in demand appears only marginally stronger than last year.”
The rally has come out of the blue, and the sharp rise yesterday was a complete surprise to the industry and analysts. Forecast in late 2015 and January of this year had prices struggling to remain above $US40 a tonne as global supplies were increased by extra tonnage from Gina Rinehart’s Roy hill mine in WA.
Yesterday’s jump came after China’s Premier Li Keqiang announced a growth target range for this year of 6.5%-7%, higher than many analysts had forecast, with the budget deficit set around 3% (or more than $US300 billion) which was seen as being highly stimulatory.
