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What Caused Iron Ore Prices to Surge to Multi-Year Highs?



Iron ore prices in 2016

Iron ore prices finished 2016 with an ~80% rise. The average for seaborne iron ore prices in 2016 was $58.50 per ton, but the consensus called for a further downside.

Higher-than-expected Chinese demand, which was supported by a government stimulus, and lower-than-anticipated production growth from iron ore giants led this rally. In part, the rally was also supported by speculative activities in iron ore futures trading.

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Surge in 2017

Iron ore prices started 2017 on a very positive note. Benchmark iron ore prices reached $92.23 per ton on February 13, 2017—the highest level reached since August 2014.

Chinese trade figures continued to come in strong for the month of January 2017. Chinese iron ore imports were also quite strong during the month.

Meanwhile, Chinese steel mills proceeded to replenish their inventories after the Lunar New Year, which supported higher prices. This also led to gain among miners (XME) like BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE), and Cliffs Natural Resources (CLF).

How’s the outlook?

Now, with 2016 behind us, investors are wondering if 2017 can sustain iron ore’s gains along with the gains of miners. Of course, there are many factors that affect seaborne iron ore prices. The most significant of them is supply growth and demand from China, which consumes more than two-thirds of seaborne iron ore.

In this series, we’ll look at the seaborne iron ore industry’s 2017 outlook and explore how its supply and demand could play out in 2017. This should give us a clue about the future direction of iron ore prices.

Continue to the next part for a look at the role of strong iron ore prices on tier-two mining companies.


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