Chinese iron ore prices leap 7%, lifting mining stocks

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Iron ore is enjoying a post Chinese New Year rally.

Trading of the steel-making ingredient rose 7 per cent in China Monday to its highest level since October 2013. Iron ore jumped by over 80 per cent last year and now sells for over $90 a tonne in China.

That’s helped boost shares of large iron ore producers such as Rio Tinto, which are up 16 per cent this year.

The recent price drive has been driven in part by a pick-up in construction in China following the annual Chinese new year holiday that ended at the beginning of February. Imports of iron ore by China rose by 12 per cent in January, data released last week show.

China has pledged to cut down its outdated steel production, but research by Greenpeace and consultancy Custeel released Monday said the country’s steel capacity actually increased last year.

“The vast majority of the steel production capacity targeted was already sitting idle, enabling restarts of previously idle factories and new capacity coming online to more than offset the closures of operating capacity,” it said.

At the same time, growth in iron ore production has slowed down. Iron ore production rose by 1.1 per cent last year to 3.26bn tonnes, according to Thomson Reuters GFMS.That’s lower than the 6.5 per cent compounded annual rate of growth over the past decade, from 2006 to 2015, they said.

Still, a price or iron ore about $80 a tonne is likely to push higher-cost producers to enter the market, according to analysts at Investec.

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