Why are iron ore prices at 7yr highs?
The Australian dollar jumped to a two-year high amid soaring iron ore prices. The national currency has skyrocketed by almost 8% against the US dollar since the beginning of this year.
«The Aussie continues to rally above 0.7570 in Asia on Friday, boosted by a rise in commodity prices last week and a sharp rise in iron ore prices due to a number of factors, including poor weather in Port Hedland.», – said Tapas strickland, Director for Economics and Markets, National Australian Bank.
Analysts say iron ore prices have soared as demand from China rises. The cost was also affected by reduced supply and supply disruptions caused by storms that hit Australia, the largest market participant in this segment..
Iron ore futures on the China Mercantile Exchange rose nearly 10% on Friday, breaking 1,000 yuan ($ 152.95) per ton for the first time in history.
Hayden dimes from ANZ Research attributed high prices to strong demand from China. Australia accounted for about 60% of the world’s total shipping in 2019, according to the World Steel Association..
«There is no doubt that Chinese demand has been stronger than expected amid fiscal stimulus measures. However, the threat of further supply disruptions has also significantly impacted the increased interest», – he said.
China’s economy is recovering from the effects of coronavirus, fueled in part by investment in infrastructure. This provoked a sharp increase in demand for steel products..
Beijing is buying up most of Australia’s iron ore today despite geopolitical divisions.
«Increased ore prices help ignore bad news, including further deterioration in relations between the Australian and Chinese governments», – stated in the Commonwealth of Australia Bank (CBA). Commodity prices are the main determinant of the fair value of the Australian dollar, experts say.
Many of Australia’s exports – including wine, barley and cotton — were drawn into the country’s geopolitical tensions with China, its largest trading partner. Bilateral relations between Canberra and Beijing soured earlier this year after Australia backed growing call for international investigation of China’s actions to combat the coronavirus pandemic.
Iron ore, however, was bypassed by the conflict between the two countries..
Compared to the previous four weeks, exports of Australian ore declined by about 6.1% in a week, which, according to experts, is very unusual for this time of year..
«While fears of a decrease in trade flow may be justified, amid a decrease in the supply of Australian coal and copper concentrate to China, we believe that it is too early to expect the same from iron ore.», – analysts write.