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The iron ore price jumped a whopping 20 percent on Monday to hit $62.60 per tonne. Writing for Reuters, Andy Home explains what caused the rally, pinning it to the fact that “iron ore is following steel prices, which have also rocketed in China.”
The iron ore price jumped a whopping 20 percent on Monday to hit $62.60 per tonne. Writing for Reuters, Andy Home explains what caused the rally, pinning it to the fact that “iron ore is following steel prices, which have also rocketed in China.”
Of course, the question then becomes “what’s driven the steel price up?” Home provides an interesting overview of the issue, ultimately concluding:
The key point, though, is that sentiment is now as important a driver of iron ore and steel prices as old-fashioned supply and demand considerations.
Or as analysts at Citi put it, “both markets have become increasingly financialized”.
“Price movements in both markets are starting to resemble those of copper, oil, and other financialized commodities with significant influence from macroeconomic factors and financial trading flows in addition to supply and demand.” (“Iron Ore, Unsustainable Price Spike”, March 7, 2016).
And surely it’s no coincidence that this iron ore rally is taking place while just about every other industrial commodity, particularly oil, has been bouncing off multi-year lows.
It’s a sign that iron ore has joined the rest of the commodity casino, a place where the madness of the crowd can sometimes overwhelm fundamentals.
Not for long, though.
That golden rule applies just as much to the new iron ore and steel markets as it does to everything else.