The iron or short squeeze is getting its groove on now with Dalian futures up 2% and change today. Reuters quotes a trader saying “Some local governments have started to implement some small stimulus measures to boost activity and I think the better economic outlook is behind the surge in prices.”
At this stage I still reckon it’s short covering. We’ll need to see a sharp turn up in both steel prices and the BDI capesize to confirm a decent-sized restock.
Meanwhile, from Mac Bank via the SMH blog:
“The most pertinent question is whether Rio will be bold enough to proceed with a much-mooted share buyback in early 2015 if iron ore ends 2014 on a weak note,” Macquarie analyst Jeff Largey wrote in a June 24 report. The bank estimates BHP could buy back 5 per cent of its market value and Rio 10 per cent, about $19 billion of shares at yesterday’s prices.
…“We question whether Rio may look to limit the scope of a potential buyback,” Largey said. “A weaker-than-expected iron ore price and a share buyback may limit future funding flexibility.”
…If the price of iron ore averages below $US100 a ton this year, BHP and Rio “may struggle to justify a share buyback program and expect to meet credit metrics,” Largey said. Still, if the price rebounds toward the bank’s estimated second-half average of $108 a ton, a buyback could be justified, he said.
