16-03-2017

Why Are Iron Ore Prices Soaring Again?

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Iron ore futures traded in China soared 5.5% to 725 yuan per tonne on Wednesday morning, edging towards the 2017 high seen on February 21.

Is iron ore staging another rebound?

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Iron ore futures in China are edging towards 2017 high

This blogger sees 3 reasons why iron ore prices are rising.

First, China’s fixed asset investment data for January and February show that demand for steel remains solid. Private-sector investment, which constitutes 60% of the total investment, increased by 6.7% from a year ago, the highest growth rate in a year. Investment in the real estate sector was particularly strong, rising 8.9% year-on-year in the first two months of the year versus 6.9% growth for the entire 2016. Meanwhile, infrastructure investment, which also uses a lot of steel, rose by a spectacular 21.3% from a year ago, thanks to local public projects.

Second, the Dalian Commodity Exchange in a trial move will slash transaction fees by 90% for near-month iron ore contracts between May and July to boost transaction volume. Reuters reported that Dalian Exchange also plans to open up the contracts to foreign investors.

Third, iron ore inventory at major Chinese ports edged down slightly, by 0.6% from a week ago to 116.9 million tons. To be sure, inventory in China is still up 33% from a year ago.

This morning, Australia’s Fortescue Metals (FMG.Australia) soared 5.7%, BHP Billiton (BHP) gained 1.1% and Rio Tinto (RIO) rose 1.9%. Overnight, Brazil’s Vale (VALE) gained 0.2%.

Source: Barron’s

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