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Why Iron Ore Prices Are Rising despite Disappointing Chinese Data

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Iron ore prices

As we discussed in Why Iron Ore Prices Could Have more Upside after Breaching $100, iron ore supply tightness and continued strong demand from China have driven iron ore prices above $100 for the first time in the last five years. Iron ore prices are breaking one record after another. Today, Dalian iron ore futures reached a record of 797.5 yuan per ton (or $115.2), as reported by Reuters. This is the highest level since Dalian iron ore futures started trading in 2013.

The futures have gained 11.4% this week and ~80% this year. Spot iron ore prices are also trading near a five-year high at $107.5 per ton.

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Iron ore bucking downtrend in other commodities

This increase in iron ore comes at a time when other commodities, including copper and aluminum, are reeling under pressure from weaker demand amid escalating US-China trade tensions. Iron ore is bucking this downtrend due to the strength of both the demand and supply sides. Vale’s (VALE) dam disaster in late January led to a huge production hit. In addition, BHP Billiton (BHP) and Rio Tinto (RIO) are facing short to medium-term weather-related supply disruptions. These disruptions are keeping the supply in check at a time when China’s iron ore demand is robust. China’s (FXI) steel production in April came in at a record high of 85.03 million tons, implying growth of 12.7% month-over-month and 11% year-over-year.

You can read Why Iron Ore Prices Are Bucking the Downtrend in Metal Prices for a detailed analysis.

Iron ore ignoring weak Chinese data

What is even more interesting to note is that iron ore prices are rising even though Chinese economic data remains disappointing. Today, the Chinese industrial production growth data was released, which came in at 5%, which was below expectations of 5.5% and also a 17-year low. The fixed-asset investment grew by 5.6% in the first five months of the year as compared to expectations of 6.1%.

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