Is the iron ore price going back to the boom times?
The spot iron ore price is now not far off the magic US$100 a tonne mark, with it hitting US$92.15 a tonne on April 3 to be at its highest level in over two years according to data provider Market Index.
However, it’s still a long way off the boom time prices close to US$185 a tonne hit during the peak of China’s construction super-cycle between 2010 – 2012.
As China has industrialised and built new urban metropolises at a breakneck pace it’s dragged the Lucky Country’s economy higher with it over the last 30 years thanks to the insatiable demand for iron ore as the core steel-making ingredient required to reinforce concrete structures.
In fact the recent tax breaks handed out to almost every Australian in this week’s 2019 budget are largely supported by the swelling government coffers thanks to rising iron ore mining royalties.
Ordinary tax payers are only getting a tiny benefit from the iron ore price strength though compared to investors in miners like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) and Grange Resources Ltd (ASX: GRR). All of their shares have rocketed higher over the past year.
This week China reported some stronger-than-expected manufacturing data and the iron ore price is commonly considered a proxy for the strength of China’s economy.
However, it’s supply shortages out of, Brazil, the world’s second largest iron ore producer that are reportedly forcing the iron ore price higher in 2019.
The shortages are the result of a tailings dam accident that saw more than 300 people killed, with Brazilian miner Vale S.A. now restricted in its production due to safety concerns.
No one knows which way the iron ore price will head over the medium term, but over the short term there’s no reason it couldn’t go higher.
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