To all China bears: Iron ore has just scaled $120
Iron ore continued its strong rally on Thursday, adding $1.30 or 1.1% to $120.00 a tonne; a psychologically important number for the industry.
Benchmark 62% iron ore fines at China's Tianjin has now clawed back more than 38% of its value since hitting a three-and-a-half year low of $86.70 on September 5 according to data supplied by SteelIndex.
$120 a tonne has become something of a rule of thumb among iron ore producers – when prices stay below this level for long enough high cost mines, particularly those in China, become unprofitable leading to cuts in supply.
Rio Tinto in its recent post production results briefing said as much as 100 million tonnes were taken off the table during the recent downcycle, which pushes prices back up.
Iron ore's bounce comes as signs appear that the Chinese government may have succeeded in orchestrating a soft landing for the world's second largest economy.
While the country is growing at its slowest pace in three years – still a relatively robust rate of 7.4% – many analysts believe export growth of almost 10% in September and other factors such as strong money supply point to an acceleration going into 2013.
Beijing has also approved a raft of new building and rail projects in a concerted effort to boost its slowing economy – the fortunes of the steelmaking ingredient have been increasingly tied to Chinese investment in infrastructure.
The annual seaborne iron ore trade is roughly 1 billion tonnes and more than 60% of the commodity ends up at Chinese ports.
Investment bank Morgan Stanley forecast the iron trade to grow 14% in 2013 – three times the rate of expansion predicted for this year.