Iron ore rally will be short-lived

Iron is trading at a two-month high at close to $US60 per tonne, however most analysts predict the upswing will not last.

Benchmark iron ore for immediate delivery to the port of Tianjin in China was last trading at $US58.50 per tonne, up 2.8 per cent from $US56.90 per tonne in the prior session.

This is the commodity’s highest value since July 1, but still a far cry from the $US82 per tonne iron ore was trading at in September 2014, or the $US134 per tonne it was valued at in 2013.

The price rise comes as Chinese steel mills restock, with construction activity traditionally picking up the in country from September.

However, a slowing Chinese economy and a weak property sector is expected to keep the value of iron ore from rising significantly.

"China's weakening demand is the broader trend. Iron ore imports probably peaked last year so we'll see purchases sustained at current levels or slightly lower,” Wu Zhili, a Shenhua analyst in Shenzhen said.

This was echoed by a client note written by ANZ, which stated the rally will be short-lived, with slowing steel demand and increasing challenges to Chinese steel export.

Meanwhile, brokerage and investment group, CLSA, predicts iron ore will fall back to below $US50 per tonne next year as low-cost supply from major miners begins to enter the market.

CLSA said the iron ore price will average $US46 a ton in 2016 and $US45 a ton in 2017 and 2018.

“The seaborne iron-ore market will be in permanent decline tonnage-wise from 2017 as Chinese steel demand passes its peak and scrap generation in China starts to accelerate,” the report said.

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