Iron ore prices
Seaborne iron ore benchmark prices have remained strong this year. For the first time in two years, in November, iron ore prices crossed the $80 per ton level. With this, the YTD (year-to-date) gains for the steel-making (SLX) commodity have reached 82%. In contrast, in November 2015, iron ore prices were close to $40 per ton.
Donald Trump’s win in the US election added fuel to the fire of iron ore’s already steady gains, which caused the futures markets to explode. Fundamentally, investors were hopeful about Trump’s pre-election pledge to spend $550 billion on infrastructure projects, which is supportive of commodity prices.
Speculators took this rally as a chance to make further profits, which led to prices spiking again. Chinese authorities clamped down on speculative activities by increasing margin requirements and transaction fees, which calmed some of the frenzy.
Followed by upgrades
The commodity price strength was, however, renewed by Goldman Sachs’s (GS) price upgrade. After remaining bearish on commodities for four years, Goldman Sachs has raised its price forecasts for commodities, including iron ore. Other investment banks have also raised their forecasts on the back of strong commodity prices.
Impact on Cliffs
With stronger iron ore prices YTD, iron ore miners have recuperated from some of their losses. Cliffs Natural Resources (CLF) has outperformed, with a YTD rise of 474% as of December 1, 2016. Its APIO (Asia-Pacific Iron Ore) division is directly exposed to the seaborne iron ore prices. Cliffs’ pricing for long-term contracts in its US division is also slightly tied to the benchmark iron ore prices.
Firmer seaborne iron ore prices have also helped other miners. Fortescue Metals (FSUGY) and Vale (VALE) have risen 221% and 130%, respectively. Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen 30% and 35%, respectively.