Futures in Singapore have surged almost 70% this year, hitting
their highest since trading started in 2013, as China's stimulus-led rebound
fuels steel output and consumption
A surge in demand
in China, the world’s key growth engine, risks a shortage of iron
ore that’s pushed prices past $150 a ton and crowned it this year’s
best-performing major commodity.
Futures in
Singapore have surged almost 70% this year, hitting their highest since trading
started in 2013, as China’s stimulus-led rebound fuels steel output and
consumption. The rally received an added boost from Vale SA’s cut to annual
production guidance last week, while the first quarter is likely to bring
elevated risks of weather disruptions for southern hemisphere producers.
At the heart of
the rally is China’s
position as the only major economy to see a sustained and robust rebound from a
pandemic-driven slump this year, with investment in infrastructure a key pillar
of growth. That’s boosting steel demand, buoying prices of the alloy and
encouraging the top steelmaker to increase output even as input costs rise.
It’s also got
Chinese buyers seeking an intervention, shares of Australian producers BHP
Group and Rio Tinto Group soaring, while some market watchers are starting to
caution that prices are rising beyond what’s justified by fundamentals.
“The market is in
disequilibrium right now -- investors are trading industrial metals like iron
ore as a speculative play on how China’s economy is going to perform,” said
Atilla Widnell, co founder at Navigate Commodities. “There is no way iron ore
can be at $150 based on demand and supply fundamentals.”
Morgan Stanley
said prices look increasingly overbought, though it forecast a deficit, while
Goldman Sachs Group Inc. has highlighted the potential for more upside amid a
shortage.
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