Iron Ore Prices Hit 1-Month High Of $71.49 On Speculation China To Speed Up $1.1T Infra Projects In 2015

The first week of 2015 appears to dispel previous forecast that it wouldn't be a spectacular year for Australia's iron ore sector after price of the commodity hit a five-year low of $66.84 on Dec 23, 2014.

On the first trading day of the year, price of the key-steelmaking ingredient slightly rose to $71.26 per tonne.

On Tuesday, Bloomberg reported that the price of ore with 62 percent content that was delivered to Qingdao, China, went up to $71.49, representing the highest price in one month. It is also the biggest weekly gain in 18 months.

The reason behind the increase in price is speculation that China would speed up $1.1 trillion infrastructure projects in 2015, which is actually part of a broader and bigger $1.6, t trillion plan running through 2016 across seven industries, including oil-and-gas pipelines, transportation and mining.

The speculation has resulted in port inventories going down for the sixth consecutive week. Data from the Shanghai Steelhome Information Technology Co said that stockpiles contracted 0.9 percent to 100.6 million tonnes as of Jan 2, the lowest level since Feb 14. It is a change from weeks ago when large inventories of iron ore was still the norm.

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This development, said HSBC chief Australian economist Paul Bloxham, would lead to restocking and support for iron ore prices in the coming months, making the present prices of $65 to $75 per tonne a low point.

Meanwhile, iron ore futures also went up on Tuesday by 4 percent to their highest level since November because of bad weather in Australia, the world's biggest producer of the commodity.

Reuters reports that a tropical low-pressure system has the potential to dump heavy rains that could flood northwest Australia and has the potential of developing into a stronger tropical cyclone by Wednesday.

A cyclone would close ports in Australia. However, a Ningbo-based trader said while weather is just one factor that pushes up the price of iron ore, high inventory levels at ports and low demand from steel mills won't boost iron ore spot prices.

To contact the writer, email: v.hernandez@ibtimes.com.au.