The Comeback of Iron Ore

Good news in the mining sector has been hard to come by as commodity prices have been on a steady decline for months. But now, iron ore has climbed to its highest point in the last three months on Friday (2/19/16) and it is great news for miners and manufacturers alike.

China has boosted output after the Lunar New Year break and this could have contributed to the jump in prices. Also, the biggest miners have posted a slower growth in supply. As of now, iron is making a comeback but it will be a slow one.

Raw iron has climbed 11% percent this past week and according to Metal Bulletin Ltd. and ore with 62% content rose 2.9%. This brought a dry metric ton to $48.52 on Friday, the highest it has been since November 2015. Miners saw shares jump and in particular, Fortescue Metals Group Ltd. Based in Sydney, jumped 23% since February 8th.

“The market has become more optimistic about iron-ore and steel demand in the coming weeks as manufacturing activity generally improves after the winter,” Zhao Chaoyue, an analyst at China Merchants Futures Co. “Still, these are merely expectations. Whether the price rally can be sustained would hinge on downstream demand for steel.”

Even with this recent rebound, iron ore is still only trading at a quarter of its 2011 peak price. With a seaborne surplus at an estimated 45.8 million tons this year and 34.1 million tons in 2017 according to Morgan Stanley, the World Bank has predicted that iron ore could be the biggest loss among metals this year.

Sustaining this gain will depend on the demand of steel products in the near future. The drop in oil prices has reduced the demand for steel equipment on oil drilling sites, as well as refineries. However, manufacturers continue to diversify to offset the drop in new orders from oil companies. Continuing to drive the demand for steel and steel products will help the iron ore gains hold firm.

Still, many aren’t as optimistic when it comes to sustaining this price gain. Seasonally, trends show that one or two months after the Lunar New Year demand and prices are expected to fall.

There could be an upside to the overall low prices of iron ore to help manufacturers prepare for an increase in steel demand in the future. Cheap ore now could mean big savings on projects to come. However, overall stability is ideal and what manufacturers and miners are hoping for.

Miners and manufacturers can rejoice for now about the slow comeback of iron ore prices, but expect some continued volatility in these markets. Manufacturers can continue to drive the demand for steel up by looking into new booming industries to help offset the fallout from the plunge in oil prices. Keeping demand up will be key to stabilizing both the mining and manufacturing industries.