Iron ore soars past $70 to a 16-month high

Iron ore prices skyrocketed Thursday to above $70 a tonne, hitting their highest level since January 2015.

The spot price for benchmark 62% fines gained 8.78%, or $5.69, to $70.46 a tonne, extending this year’s gain to 61.7%, according to data from the Metal Bulletin.

In percentage terms, the surge was the third largest since spot pricing first began in May 2009.

In percentage terms, the surge is the third largest since spot pricing first began in 2009.

Iron ore’s recent surge is due in part to recent measures taken by the world’s top producers — Vale (NYSE:VALE), BHP Billiton (ASX, NYSE:BHP) and Rio Tinto (ASX, LON:RIO). The “three big” cut their full-year iron ore guidance this week.

Rio Tinto led the pack, announcing that its 2017 shipments would be lower by about 15 million tonnes. The miner's global output, however, showed double digit year-on-year gains in the first quarter of the year and said it remains on target to produced a record 350 million tonnes this year.

Iron ore soars past $70 to a 16-month high

BHP followed suit cutting its production forecast for the financial year ending June 30 by 10 million tonnes to 229 million tonnes. Quarter on quarter production declined by 7% due to bad weather.

Top iron ore producer Vale also said it expected full-year iron ore production to come in at the lower end of guidance.

But the commodity surge is also a result of China's fresh stimulus measures that aim to boost steel production, which suggests a revival in the country’s property construction sector that has boosted the outlook for steel consumption.

The sector, however, remains cautious as both actors and analysts alike expects a return to lower prices given the scale of oversupply in the industry.

Speaking in Melbourne on Thursday, the new president of BHP Billiton's Australian operations, Mike Henry, noted there was too much potential for extra supply to come into the market for prices to hold for more than a few months.

Iron ore soars past $70 to a 16-month high