How Real Is the Recent Iron Ore Price Rally?



Iron ore price rally

Iron ore prices surged despite most of the Market’s participants believing the contrary in 1Q16. Compared to the low point iron ore’s price reached on December 11, 2015, prices rose an impressive 55% to $62 per ton as of April 14, 2016.

Year-to-date (or YTD), the commodity (COMT) has risen 23%. On the whole, iron ore prices have been quite volatile. This has raised several questions as to what caused the spike and whether or not such price rallies are sustainable.

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Iron ore miners’ performance

With firmer iron ore prices, iron ore miners have also recuperated their losses. On a relative basis, Cliffs Natural Resources (CLF) has outperformed with a YTD rise of 145% as of April 15, 2016. Fortescue Metals Group (FSUGY) and Vale (VALE) have also risen 70% and 67%, respectively.

On the other hand, Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen 5% and -1%, respectively.

Series preview

In this series, we’ll analyze the possible reasons that led to iron ore’s spike. We’ll see if anything in the supply-demand fundamental space has changed so as to suggest a sustained price recovery. We’ll start by looking at analysts’ take on the recent iron ore price rally and the commodity’s expected course.

Citigroup’s (C) latest quarterly commodities report signaled a bearish market ahead for iron ore. We’ll look at it in more detail in the next part of our series.


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