Iron ore costs set to reach almost US$60 per tonne


Iron ore continues to strengthen in price, defying market predictions. Data from The Steel Index has shown an increase in iron ore prices for the second day in a row on Tuesday to almost US$60 per tonne, with a leap of 4.7 per cent to US$58.50 per tonne for the Northern China benchmark import price.

This comes despite the recent drop in price to close to $US50 per tonne earlier this month, with expectations from investment groups that increases were unlikely to continue.

However, new data by the Australian government is more optimistic with the metal estimated to average US$45 per tonne in coming years and predicted to increase to US$64.7 by 2021.

Iron ore is 2016’s best performing commodity, marking a 36.4 per cent rise in the year to date, recording a 58 per cent increase from the low points reached in mid-December.

Almost half of the world’s steel is produced by China, with the nation accounting for 70 per cent of the seaborne trade. On Tuesday, Benchmark Shanghai rebar utilised for construction reached the highest level since June 2015, while the Chinese import price of hot rolled steel rose by 37 per cent in six weeks, leading to a 14 month high.

The IMF put forward a positive outlook for the Chinese economy on Tuesday, increasing its growth expectations for the nation in its World Economic Outlook. The growth forecast was increased by 0.2 per cent to 6.5 per cent this year, and to 6.2 per cent for 2017, due to recent stimulus measures and strong domestic demand. This expected growth is below the 2015 growth rate of 6.9 per cent, however the current positive forecast follows three downward adjustments since the start of 2015.

Data released on Monday found the first month-to-month increase in producer price in China since 2013 has occurred, breaking the three year losing streak.

Expectations for the continued improvement in the Chinese industry’s pricing power still exist, despite the negative outlook caused by declining input costs of raw materials – which accounts for three quarters of the measure. This is shown by independent research from Capital Economics which outlines that commodity prices will be increased by an end to factory gate deflation at the end of this year.

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