Find above the iron ore price complex chart for December 17, 2012. This will be my last post of the year, returning January 14th.
Here is the spot/swap price chart:
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.
The problem is the move looks purely speculative, based upon hopes for the Chinese Economic Working Group and slowly improving macro data. Here’s Chinese steel prices, now eating iron ore dust:
Here’s the local bulk shipping rates also eating iron ore dust:
The same is apparent in the Baltic Dry.
This has sent my spread charts into meltdown. Spot to swap has held at a record stretch for this price bracket:
And spot to rebar has gone as wide as it used when when the price of ore was at $170 plus:
A complete breakdown in long term trends too, as you can see.
So, is it sustainable? My guess is it’s a bull trap but I have no idea. As I wrote last week after the breakout, when a market begins twirling towards freedom, who knows where it stops? To give us some notion, here is the iron ore price chart with major resistance points:
That is, it is right on it. If it goes through, there is every chance that this move blasts higher still. How high? Here is the 12 month swap resistance level:
Swap will have to move higher as well and its resistance point is $120. I can’t see the spot move getting through $140 unless some new good news about Chinese urbanisation is forthcoming. But it could run on. As I’ve been pointing to for a while, Chinese port stocks have been falling steadily:
I’ve argued that this looks like a structural reduction in stockpiling as demand shunts lower for good. But if the Chinese government does announce broad new measures for more investment then this could reverse and the mother of all restocks take hold. A kind of physical short squeeze. Ore could do anything in that environment.
I don’t think it will happen because I don’t think China will want build more stuff but some clearly do and stranger things have happened. A volatile end to a volatile year!
See you in January.
