Investor attention is turning to iron ore stocks as the price of the commodity surged 10%. It seems global markets are looking to capture a piece of the world’s economic recovery. Shares of Brazilian miner Vale (NYSE:VALE) are up more than 4% in trading on Monday morning.
Iron ore “is very, very hot,” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, told Bloomberg TV. “Supply is still not able to meet that strong demand.”
Iron ore is the source of primary iron for the world’s iron and steel industries, according to the U.S. Geological Survey. It is essential for the production of steel; almost all of the world’s iron ore production is used in steelmaking.
Iron Ore Prices Surge on China Output
China’s steelmakers are maintaining output rates above 1 billion tons a year, seemingly ignoring production limits aimed at reducing carbon emissions and throttling supply. Those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs and potentially front-load output ahead of more environmental restrictions, Bloomberg reported.
Writing last week about specialty steel maker Cleveland-Cliffs (NYSE:CLF), InvestorPlace contributor Dana Blankenhorn noted “the steel industry has been turning down for decades, but Joe Biden says it’s coming back, baby. If American industry is coming back, it’s going to need a lot of rolled steel. Infrastructure uses a lot of steel, and so do cars.”
And that steel needs a lot of iron ore.
As the Financial Times reported earlier today, “It’s more than just China now … it’s the whole strength of recovery in the steel industry globally,” said Justin Smirk, senior economist at Westpac. “I think the reality is the market’s still incredibly tight, we’ve still got very, very strong steel prices.”
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News, McKinsey & Co. and McDonald & Company Investments.