Daily iron ore price update (forecasts remain hopeful)

Iron ore prices rose yesterday in China as demand pushed spot prices of the metal to the highest in more than a week, with futures spiking alongside as the coal squeeze continues:

And there’s more argy-bargy on where the precious metal will go in 2022 with forecasts still all over the place. More from AFR:

The iron ore price has defied forecasts for a fall into the end of last year to reach four-month highs of $US126.71 a tonne on December 21, after the People’s Bank of China cut one-year lending rates to boost economic momentum across the world’s largest buyer of the steel-making ingredient.

As it turned out, spot prices averaged $US155 a tonne in 2021. Consensus expectations for 2022 are $US90 a tonne versus the December 31, 2021, spot price of $US120.75 a tonne, and Mr Cleary said the market’s expectations for 2022 were probably too pessimistic again.

Morningstar forecasts iron ore prices to average $US116 a tonne from 2021 to 2024 inclusive.

“In the short term, the price can swing around – it’s been a volatile year,” said Mathew Hodge, Morningstar’s director of equity research.

“The constraints around power in China appear to be easing from their height a few months ago. Monetary policy has also loosened, which could provide an important signal for downstream steel producers that the government and central bank will support the economy and demand will improve.”

However, Mr Hodge warned 2022 could see supply increases from Australia and Brazil as Chinese demand flattens.

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    • Jeff Snider, as always, on top of his game. Things are getting ugly and it is a question of “when?”

    • Do you understand this eurodollar angle they are pushing – please could you take a minute to explain?

      • The way I understand it is the eurodollar credit creation system ( been going since 1955 and caused the creation of the modern RBA and others in 1959 ) failed in 2008 and can’t be restarted. These credits are created by banks in the US dollar system expanding their balance sheets in a mutual and shared manner to get big projects off the ground.

        Since 2008 no-one trusts the other banks so co-operation has ceased and all big banks now have fortress balance sheets. First the interbank market failed, then the repo system failed….both taken over by the Fed and now it looks like they will have to go to central clearing to keep the Treasuries ( which are the collateral for everything ) from being pulled into the vortex. With central clearing there is no real need for clearing banks.

        All this means that most credit creation has had to come from central banks but they are reaching their limits and direct government spending is going to have to step up or debt will have to be cancelled. Their real fear is that all these eurodollars will head to the US and have to be swapped for real US dollars to keep faith and that will cause a large inflation.