Australian iron ore could be moving into a new super cycle

  • Iron ore price hits seven-year high as China’s steel industry gobbles up spot cargoes
  • ‘Cyclically stronger, more commodity-intensive economic growth’ created by government pandemic spending
  • Australian iron ore supply failing to keep up with demand growth

Australian iron ore is commanding prices of $US138 per tonne ($185.70/tonne) in the international spot market, a level last seen seven years ago at the height of the China commodity boom. The rise in iron ore prices has been triggered by a combination of factors, including reduced output from Brazilian iron ore miner Vale, and China’s accelerating steel production. Some analysts, including at investment bank Goldman Sachs, suggest China-driven commodity markets like iron ore could be verging on a new super cycle of the ‘stronger for longer’ kind.

In a report Goldman Sachs said governments around the world including in Brazil, Russia, India and China (BRIC countries) have brought forward new green infrastructure policies to tackle the COVID-19 pandemic. These policies are likely to “create cyclically stronger, more commodity-intensive economic growth, that should create the elusive cyclical upswing in demand”, as reported by Reuters. But other analysts are less sure, suggesting the jump in iron ore prices could be temporary.

“The recent surge in iron ore prices to multi-year highs suggest that prices are more likely to decline from here over the next 12 months,” said Commonwealth Bank of Australia analyst Vivek Dhar in a report this week.

“China’s demand impulse should eventually weaken at some point next year, especially as China’s fiscal policy will likely move away from supporting China’s commodity intensive sectors,” he added.

 

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