Iron Ore Prices Up On Beijing’s Infrastructure Plan

Spot prices of iron ore jumped like crazy on Monday after Beijing announced over the weekend it would embark on an AU$150 billion ($US157 billion) infrastructure building plan to boost domestic spending, giving iron ore miners hope for better days ahead.

Based on data from information provider The Steel Index Ltd., prices of the key steelmaking ingredient jumped 6.7 per cent to $95 a metric tonne, its biggest one-day surge since December 2008. Last week, iron ore hit a near three-year low of under $87 a tonne.

"There's more interest now from buyers to get iron ore cargoes even at prices slightly higher than previous deals. Sentiment's better," a Shanghai iron ore trader said In Reuters News.

Already, steelmakers and traders are getting excited as China's infrastructure building plans may lead to a huge demand for the item, which corresponds to an equally hyped-up activity in the iron ore mining industry.

Last week, China, the world's largest importer of iron ore, said it will boost expenditure outlay on railways and subways, as well as road construction, nine sewage treatment plants, five port and warehouse projects, and two waterway improvements. These projects could very much support increased demand for the steelmaking raw material.

"China has shown its hand," Richard Lee of Barclays Plc, said in Bloomberg News. "It intends to add a number of new projects and mills are now short, and therefore they are restocking."

In August alone, China's imports of iron ore jumped 5.7 per cent at 62.45 million tonne from a year ago and 7.9 per cent month-on-month.

However, others are not as excited as the planned infrastructure building could just be a temporary high.

"The news of a trillion yuan being injected into infrastructure spent in China was the biggest catalyst for today's jump to the upside. Compared to 2009 though when nearly 15 trillion was injected, this is small cheese," London Dry Bulk, an iron ore brokerage, said in a report.

"When you take a step back and look at this, it is not really that significant and this could be just a knee jerk reaction. Perhaps prices will continue to fall further after the dust settles."