In great news for iron ore miners around Australia, the iron ore price has just hit a five-year high — here’s how that happened.

Reuters has reported that S&P Global Platts’ IODEX price benchmark rose $3.70 per tonne to hit $110.2/t — its highest level since April 2014.

While it was called a “short-term correction” from traders by CRU Group’s senior metals analyst, Richard Lu, there are a few supply issues rippling through the market causing the upward trend.

The first is supply constraints caused by weather at Australia’s export ports, and the ongoing effect of the Vale disaster in Brazil.

Respected market analysis group S&P Global says Brazilian production will fall by 54 million tonnes this year — more than double its previous estimate of 23Mt.

Meanwhile, it’s forecasted Australian production of 892Mt — which is a drop on previous forecasts of 16Mt.

READ: Why the iron ore price has been on a bull run

Then, there’s recent rumblings about China wanting to support its economy through a regional infrastructure building program.

The Chinese government had previously curbed construction from regional governments as it sought to remodel its economy as a consumption economy and it started to worry about the debt accrued to fuel the previous construction blitz.

But, potentially worried about the ongoing effects of a trade war with the US, Beijing has sought to stimulate the economy through construction.

READ: Is China about to embark on a mini construction blitz?

And then, somewhat ironically, is toughening environmental regulations.

Making steel from iron ore is an energy-intensive process, with coking coal required to do the job — and this has driven inventories at Chinese ports to lower levels.

“But fundamentally, there’s some support for iron ore. It’s a tight market, with port inventories in China currently very low,” Lu said. “That’s why steel mills have to be active in securing cargoes.”

Imported iron ore inventories at Chinese ports have declined to 121.6 million tonnes, the lowest since early 2017, latest data compiled by SteelHome consultancy showed.

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.