Flash or fixture? Iron ore miners pin hopes on price recovery
The 6.7 per cent jump in China's iron ore import prices will be welcomed by shareholders in miners of the red dirt but is more likely to cheer traders than provide proof of a lasting turnaround for the industry.
Price shifts have clouded the underlying conditions of China's steel industry for months, with the movements mostly in one direction - down.
The prompt for yesterday's record rise - the data series, though, only goes back four years - was improving confidence that Chinese demand for steel is about to be rekindled.
The decision by the government to splash another $150 billion on a variety of infrastructure works - including big users of steels such as railways and subways - fanned the shift in sentiment.
A brighter outlook for the demand side will help steel mills drawdown stockpiled inventories of iron ore from local producers, making room for more imported dirt.
On the supply side, meanwhile, a number of producers including Vale, Fortescue and BHP Billiton have put expansion projects on ice in the face of the slump in iron ore prices since the start of July.
Thus, it's a case of shifting supply and demand curves in search of an equilibrium.
Iron ore producers had seen strong rallies in their shares in recent days as some of the bears got knocked out of the way.
Today, as the Australian market opened generally weaker, miners were back influx, with Fortescue again resuming its slide. Seems the prospect of an equity raising won't be erased by a single-day's rally in Tianjin ore prices to about $US95 a tonne.
More to come?
Still, it's worth noting that for China a $150 billion infrastructure outlay is more a trip to the local milk bar than a spending spree. For an economy with an annual output topping $US7 trillion, such investment - assuming it's all in addition to what was going to be spent - won't on its own serve as much of an accelerant for growth.
The hope, though, is that the spending marks the start of a wider program, with a lot more stimulus to come.
Either way, if those hopes push up iron ore prices, they will be a welcome relief to the likes of billionaires Gina Rinehart and Andrew Forrest, who are shuffling funds to finance their respective developments.
Iron ore traders, meanwhile, are now making positive noises about volumes and the restart of extra shipments of the commodity.
Whether the positive sentiment is a flicker or a fixture depends on what China does next. But for Australian miners, it is too early yet to rethink those capex spending plans.