I’ll keep this short, as I’m not feeling the best today, but it’s hard to resist covering some rare good news for the Australian economy through the mist of recent dour data. From morning links
China steel futures hit their highest in more than six months on Monday, backed by a revival in demand in the world’s top steel consumer that has fuelled a buying spree for raw material iron-ore and lifted prices to levels last seen in October 2011.
Baoshan Iron and Steel, China’s biggest listed steelmaker, said it will raise prices for key products for a third straight month in February, reflecting rising raw material costs and a better outlook for steel demand.
China’s recovering economy is largely behind the optimism. Data last week showed manufacturing activity in the world’s No 2 economy was at its strongest since May 2011.
“Many are expecting improved demand for steel in the first quarter so most mills continue to produce at full scale and there has been somewhat a shortage of spot iron ore cargoes in the market,” said a Shanghai-based iron-ore trader.
Most iron-ore cargoes sold via spot tenders had been snapped up by big traders anticipating a further run-up in prices, spurring caution among mills wary of rising raw material cost.
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange touched a session high of 4 047 yuan ($650) a ton, its loftiest since July 6. By the midday break, it was up 0.6% at 4 013 yuan.
Prices of rebar, used in construction, have rebounded by over a quarter from September lows. But iron-ore has far outperformed steel, surging 77% since hitting three-year troughs in September.
Benchmark iron-ore with 62% iron content <.IO62-CNI=SI> jumped 2.3% to $153.30/t on Friday, the highest since mid-October 2011, according to Steel Index. Rising prices of iron-ore, particularly those from top supplier Australia, are prompting some Chinese steelmakers to look for cheaper cargoes elsewhere.
So as H&H stated in his last post of 2012 back in Mid-December iron ore’s twirl towards freedom could have gone anywhere with the following upside possibility.
So, it’s a Christmas gift for Australia with iron ore surging to new post-bust highs. If the price can hold at these levels for three months all sorts of things will happen. Rate cuts will be off. The budget surplus will become a reality. The dollar will go to new highs. Roy Hill may even get funding.
We’re not quite there yet, and there are still questions about the sustainability of the rally even from the main players, but as Business Spectator reports this morning, prices over $140/t are about where the money starts flowing back to the government under MRRT.
Yes, given other data it’s going to be too little to save Mr Swan from his surplus promise , but he’s already given that away. Much more importantly IMHO is that a sustained higher price will scrape the moth-balls from projects and , as I’ve covered previously, this is important in terms of Australia’s economic stability given other factors. We get the PCI data at 9:30am this morning which I expect to come out on the poor side, but hopefully a bouncing iron ore price can provide some uplift in the trend and start shifting some of those dark clouds on the horizon.