From Morgan Stanley:
Price drivers: seasonality + building stimulus risk
As this rally is occurring within the trade’s restock season (Feb-May), it appears to be a late ‘buying spree’: China’s mills will be reluctant to remain short ore ahead of the northern summer’s peak in steel production and sales – regardless of the weakness in downstream demand growth in key sectors of property/infrastructure. Some in the market believe last week’s emerging expectations of a stimulus package in China is a primary price driver here, reflecting lifts in metal prices last Friday. However, as iron ore’s prices have been rising since early April, emerging stimulus risk now should only be seen as support for an established rally. Note, being a predominantly physical trade, with immature derivative markets, prices for iron ore are less exposed to speculation vs. the Metals.Upside risk from here: +$10-20/t, peaking mid-2015
We see further upside for this rally, +$10-20/t to US$70-80/t – a level corresponding with the 90th percentile of the industry’s supply/cost curve (2015Q1 data).
You never know, I suppose, but the phrase “regardless of the weakness in downstream demand” does not do much for me.
