Iron ore is going gangbusters. Hungry Chinese steel mills, which are producing more than 90 million tonnes a month, pushed iron ore prices to two-month highs on Friday. Prices have now improved for six straight days to around $US130 per tonne. They’re up 10 per cent just in November. Established supply from miners like Rio Tinto, BHP and Fortescue is struggling to meet this remarkable demand surge.

In 2009/2010 China spent huge amounts on infrastructure and construction to keep its economy growing through the Global Financial Crisis (GFC). This had a direct impact on metals prices. Iron ore, nickel and copper are just a few that rebounded strongly in the ensuing period. But analysts said this time would be different.

While China was ostensibly the first country to start recovery from virus-led economic shutdowns, an orderly recovery rather than a growth surge was more likely this time, said ANZ Research in March.

“At this stage, there are few signs the Chinese government will deliver a huge stimulus plan to boost the economy,” ANZ said. “ANZ Research believes the government will adopt a targeted approach as they do not want to repeat the side-effects of the massive stimulus package in 2009, such as rapid debt growth and over-capacity issues.”

The analysts were incorrect. Emerging from the COVID-19 pandemic, China has invested heavily into the domestic economy, pouring money into steel-hungry infrastructure.

“Steel production has gone up by 250 to 300 million tonnes. If you translate that into iron ore, China needs an extra about 400 to 500 million tonnes a year,” says Magnetite Mines (ASX:MGT) non-exec director Mark Eames. “So far, their imports are only just picking up. “They have hit about 1.3 billion tonnes [annualised] for two months — that’s huge number, but if you look at underlying steel production China is going to consume a lot more iron ore. “That’s great news for Australia.”

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