Iron ore prices defy market expectations, cross US$90 mark for first time since 2014

Iron ore prices witnessed a surprising upsurge as they crossed $US90 ($AU117.2) a tonne. This is the first time in more than two years the price has gone beyond the anticipated mark. The last time the same feat was achieved was in August 2014.

The spot price for iron ore went up by US$5.61 (AU$7.3) overnight – currently trading at US$92.23 (AU$120.2) a tonne. In 2016-17, the average price for iron ore has been estimated to stand at US$55 (AU$71.68) a tonne.

In the last two days alone, the price has risen by a margin of 10 percent. With this, the winning streak has now lasted five days. At the beginning of the streak, the iron ore was trading at US$80.20 (AU$104.5).

The development can largely be attributed to Friday’s high Chinese ore imports. This week’s talks concerning favourable Beijing policy have provided further motivation.

“The fact we have seen stockpiles of iron ore at Chinese port increase to a new 10-year high of 127 million tonnes (+2.8 per cent on the week) is certainly helpful,” IG chief market strategist Chris Weston said. “But then you also hear that the Chinese Ministry of Environmental Protection has proposed a draft to further cut steel and aluminium producers by as much as 30 percent in 28 cities across five regions, and this is like a red rag to a bull for the speculators.”

According to mining analyst Peter Strachan, the increase in iron ore prices was met with surprise. “If you just look at supply and demand you'd expect that the iron ore price would be back below $70 a tonne,” he said.

He added that several low-quality iron ore mines in China had closed. “There's around 130 to 140 million tonnes of capacity in China that has been closed down and they are preferring to buy the higher grade iron ore from Australia because they are lower polluting and cheaper to put through their steel mills,” he said. “But despite that, when you tumble the numbers there's about 70 million tonnes a year net surplus of iron ore in the market, so it appears the Chinese are building some sort of stock pile that's perhaps for their own national security reasons.”

Meanwhile, the price of iron ore contracts traded on the Dalian exchange also saw a rise – reaching US$101.76 (AU$132.62) a tonne. Shares in Fortescue Metals Group saw an increase of more than 6 percent (40 cents) on Monday. It currently trades at $6.88.

The surge comes as the possibility of iron ore prices reaching the $US 90 ($AU117.2) mark before 2020 looked difficult. Many analysts have projected that the prices for 2017 will be between US$45 (AU$58.65) and US$65 (AU$84.71) a tonne.