Markets: Rock solid iron ore

Iron ore is defying predictions of a Q3 slump as China's consumption continues to rise, taking major mining stocks with it.

So much for the iron ore bears. The spot price for iron ore imported through the northeast Chinese city continues to rise. It was up 50 US cents, or 0.4 per cent, to $US132.60 per dry metric tonne on Friday, according to Bloomberg data. That is the third day out of four the Tianjin iron ore spot price has gained. Since its low this year of $US110.40 on May 31, the Tianjin iron ore spot price has increased 20 per cent.

Iron ore continues to defy analyst predictions of a third-quarter slump. UBS reckons iron ore will drop to $US71 by September 30. But there is no sign of that. If anything the opposite is true. Steel prices, admittedly not from China, have gained along with iron ore. The US Midwest hot-rolled coil steel index futures are up 10 per cent since May 15, according to Bloomberg. Economic growth may be cooling in China but the world’s second-largest economy’s rapacious demand for steel does not seem to be slowing.

ArcelorMittal, the world’s biggest steel maker, expects Chinese automotive steel demand to grow as much as 10 per cent a year over the next few years. There are also signs of renewed demand for new ships underpinned by orders for ships across all categories. About a third of all new ships are made in China, which in 2010 surpassed South Korea as the biggest shipbuilder by tonnage.

This is good news for iron ore miners and is reflected in their share prices. BHP Billiton shares are up 12 per cent from a 52-week low of $30.43 on June 25. Rio Tinto’s stock has gained 14 per cent since the same date. Fortescue’s shares have added 24 per cent since June 24. For much of this year iron ore mining executives have been at pains to declare demand for their commodity remains strong. Perhaps now they will be listened to more carefully.

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