Caution urged over iron ore price jump
Iron ore prices surged 6pc to a new four-month high overnight but analysts warned investors not to get too excited.
Iron ore prices jumped to a fresh four-month high overnight as China renewed a pledge to cut down on steel overcapacity, pushing gains since the start of the financial year to 34 per cent and buoying the stocks of the nation’s big miners BHP Billiton, Rio Tinto and Fortescue Metals Group.
But analysts cautioned investors not to get too excited, saying there appeared to be a lot of speculative froth in the price, with pundits struggling to agree on a reason for the jump and a reduction in Chinese iron ore futures trading fees being potentially responsible.
According to Platts’ The Steel Index, benchmark 62 per cent iron ore at Chinese ports rose $US4.10, or 6 per cent, to $US73.10 last night, the highest since early April and up from lows of $US53 hit in mid June.
Last night’s gains were treated with hesitation by the Australian market, with iron ore pure play Fortescue and its diversified peers all up only about 1 per cent in early trading.
The lack of confidence in the price spike is partly due to a lack of consensus about what is driving the price rise and thoughts that it may not be sustainable.
Dow Jones is reporting that China’s renewed vows to cut steel capacity is driving the price hike, while Reuters says it environmental inspections of domestic iron ore mines, plants and steel mills are causing some disruptions, while London’s Financial Times said strong construction data was responsible.
One Australian analyst blamed the price rise on cuts to Dalian prices started yesterday.
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