Iron ore is the surprise outperformer of the year after temporary supply disruptions from Australia and Brazil sent the metal back over the $US45-a-tonne mark – although it may not stay there for long, analysts warn.
Iron ore ended last week at $US45.73 a tonne – a rally of more than 15 per cent from mid-January lows of $US39.51. Those lows were slightly more than a dollar higher than the six-year lows hit in December.
The metal, Australia's biggest mineral export, is up 5 per cent from the start of the year, when it was trading at $US43.57.
That performance – in a year marked so far by a global commodities rout – has placed iron ore first in a comparison of 68 commodities and financial assets by Macquarie Group.
Iron ore is "the best-performing major commodity in US-dollar terms since January 1, even outperforming major equity indices and government bonds," said Macquarie. "We would reiterate our view ... that sub-$US40 per tonne iron ore was under whiplash conditions and was unlikely to be maintained owing to normal seasonality if nothing else."
Iron ore trade is effectively in hiatus this week due to the week-long Chinese New Year holiday, a significant milestone on the Chinese economic calendar – including steel mills and other users of iron ore.
Analysts are now trying to gauge how the metal will perform after trade returns to normal next week.
Although Macquarie believes a return to sub-$US40 prices is unlikely, other disagree.
ANZ senior commodities analyst Daniel Hynes said the supply disruptions were temporary and short-lived and prices would soon reverse.
"We would expect prices to push back below $US40 over the next few weeks," said Mr Hynes. "The demand picture remains weak and we're expecting supply growth to resume outside these disruptions."
Zhao Chaoyue, an analyst at China Merchants Futures, said while iron would extend gains after Chinese New Year, it would slide back to $US35 a tonne by August, Bloomberg reported.
"March is typically a boom period for manufacturing, so demand for iron ore has strengthened," he told the agency. After Chinese New Year, "mills with the financial ability, or which are still competitive, may boost output. But it won't be an explosive increase".
Shipments from Port Hedland in Western Australia were disrupted following Cyclone Stan in late January, and in Brazil earlier that month the federal court ordered the closure of Vale's Port of Tubarao – one of the world's most important iron ore terminals – after pollution concerns.
Port Hedland iron ore exports in January fell 10 per cent to 33.78 million tonnes from 37.547 million tonnes loaded in December. The sharp decline left volumes down 8.1 per cent from a year earlier, the steepest percentage decline on record.
In February alone the price of iron ore has increased more than $US3 a tonne, helping a rally of more than 8 per cent in blue-chip miners BHP BIlliton and Rio Tinto on Thursday.
"There's been a bit of temporary tightness in the market driven by weaker-than-expected exports," said Mr Hynes.
"That's both out of Australia – the Port Hedland numbers we saw a couple of days ago – and indications of weaker Brazilian exports as well, partly due to closure of one of their major ports over there."
Chinese restocking ahead of Chinese New Year – the week-long celebration beginning on Monday – had also played a role, said Mr Hynes.
Last week's sell-off in the US dollar, the currency in which iron ore is priced, had also helped.
"It's certainly improved sentiment so it's had an impact," said Mr Hynes of the greenback devaluation. "But the US dollar has never been as big a driver for iron ore as some of the other markets because the investor component is a lot smaller in iron ore."