After slumping hard in the fall, iron ore prices have bounced back in a ridiculous rally that has pushed the price of the raw material to more than $150 a ton. That’s up nearly 80% from the September low, with buying from Chinese steel mills driving the surge, according to the Australian Financial Review (paywall). So is this a sugar rush or a sustainable rally?
Wall Street analysts seem skeptical. Barclays notes in Australia—where iron ore is the country’s largest export—that “the major iron ore producers argue that the rebound in prices is only temporary, reflecting restocking by Chinese steel mills and demand ahead of the Western Australia cyclone season.” Deutsche Bank analysts are equally standoffish towards iron’s staying power, according to Bloomberg.
The reason Chinese steel mills are restocking is that the Chinese authorities are pumping a bunch of infrastructure spending into the economy, and the mills are anticipating a spurt of steel-buying. However, any global investors hoping for a re-run of the massive Chinese government spending spree that came after the global slowdown struck in 2008 will likely be disappointed, the Economist argues:
This year, planners have again quickened the pace of approvals for projects, especially in railways and subways. But infrastructure investment is growing at nothing like the pace of 2009. And in the year to November, it slowed, perhaps reflecting Beijing’s reluctance to give local governments the financing they need to indulge themselves.
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