Iron Ore is This Year's Hottest Commodity on China-fuelled Surge

Business Standard Iron ore is this year's hottest commodity on China-fuelled surge

Futures in Singapore have surged almost 70% this year, hitting their highest since trading started in 2013, as China's stimulus-led rebound fuels steel output and consumption

A surge in demand in China, the world’s key growth engine, risks a shortage of iron ore that’s pushed prices past $150 a ton and crowned it this year’s bestperforming major commodity.

Futures in Singapore have surged almost 70% this year, hitting their highest since trading started in 2013, as China’s stimulus-led rebound fuels steel output and consumption. The rally received an added boost from Vale SA’s cut to annual production guidance last week, while the first quarter is likely to bring elevated risks of weather disruptions for southern hemisphere producers.

At the heart of the rally is China’s position as the only major economy to see a sustained and robust rebound from a pandemic-driven slump this year, with investment in infrastructure a key pillar of growth. That’s boosting steel demand, buoying prices of the alloy and encouraging the top steelmaker to increase output even as input costs rise.

It’s also got Chinese buyers seeking an intervention, shares of Australian producers BHP Group and Rio Tinto Group soaring, while some market watchers are starting to caution that prices are rising beyond what’s justified by fundamentals.

“The market is in disequilibrium right now -- investors are trading industrial metals like iron ore as a speculative play on how China’s economy is going to perform,” said Atilla Widnell, co founder at Navigate Commo­dities. “There is no way iron ore can be at $150 based on demand and supply fundamentals.”

Morgan Stanley said prices look increasingly overbought, though it forecast a deficit, while Goldman Sachs Group Inc. has highlighted the potential for more upside amid a shortage.