Iron ore recovery unlikely to be long term
"What we're seeing at the moment is a bit of short covering recovery in steel prices in China and a relief rally also now occurring in iron ore," said ANZ's head of commodity research, Mark Pervan.
Shares of Australia's major miners failed to capitalise on the rally, with BHP falling 1.4 per cent to $33.79 and Rio Tinto falling 1.4 per cent to $54.36 amid a broader market sell-off. Fortescue Metals, whose shares are more sensitive to fluctuations in the iron ore price, rose 2.6 per cent to $3.55.
China's slowing growth has curbed steel demand, dragging both steel and iron ore prices to multimonth lows last week. China's biggest steelmaker, Baosteel, sees production rising just 1 to 2 per cent this year from last year's 716.5 million tonnes.
Goldman Sachs commodities analyst Christian Lelong said he remained bullish in the short term for iron ore, but less so for the longer term. "We expect prices to bottom at $US75 before stabilising in the $US80-$US85 range from 2015 onwards," he said.
Frequently Asked Questions about this Article…
Iron ore prices rallied 4.2% to US$116.60 a tonne on Tuesday after falling about 17% last month, according to the article. Analysts say the bounce may be short lived rather than a sustained recovery.
Analysts in the article point to a short‑covering bounce and a relief rally in steel and iron ore prices in China, rather than a fundamental rebound. They also note that China’s slowing growth is curbing steel demand, which weakens the outlook for sustained iron ore gains.
Despite the iron ore rally, shares of major miners didn’t all benefit: BHP fell 1.4% to $33.79 and Rio Tinto fell 1.4% to $54.36 amid a broader market sell‑off, while Fortescue Metals rose 2.6% to $3.55, reflecting differing investor sensitivity to iron ore moves.
The article notes Fortescue Metals’ shares are more sensitive to fluctuations in the iron ore price, so movements in the benchmark price tend to have a bigger impact on Fortescue’s share price than on some larger, more diversified miners.
China’s slowing growth has reduced steel demand, dragging both steel and iron ore prices to multimonth lows. The article cites Baosteel expecting production to rise only 1–2% this year from last year’s 716.5 million tonnes, highlighting weaker Chinese demand.
Goldman Sachs commodities analyst Christian Lelong told the article he remained bullish in the short term but less optimistic longer term. He expects prices could bottom at US$75 and then stabilise in the US$80–US$85 range from 2015 onwards.
The article does not give direct investment advice. It reports mixed market reactions and analyst caution: a short‑term relief rally is possible, but analysts warn longer‑term gains are in doubt because of weaker Chinese steel demand.
Based on the article, investors should watch steel prices and production in China (including major players like Baosteel), analyst forecasts for iron ore, and how miner share prices (BHP, Rio Tinto, Fortescue) react to changes in the iron ore benchmark.
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