Price for iron ore hits a new 6-year high

Iron ore prices hit new six and a half year highs on Monday as a result of the Chinese construction and factory expansion boom. According to Fastmarkets MB, 62% of fees imported into northern China at $ 130.17 per ton changed hands on Monday, 1.4% more than Friday. This was the highest level for the steel raw material since mid-January 2014 and will result in growth of over 41% for 2020. China is expected to set a 5.5% growth target in its 2021-2025 Economic Development Plan, the fourteenth five-year plan since 1953. While this is less than the GDP growth target of 6.5% targeted in the 2015-2020 plan, the relative size of the Chinese economy today means that GDP is growing by more than $ 750 billion every year. That corresponds to an annual expansion by the size of the entire economy of Saudi Arabia, Switzerland or Argentina. And most of the economic activity will be centered on steel-intensive industries, including domestic infrastructure, housing, and transportation. Excavator sales in China - a practical leading indicator of construction activity - are skyrocketing. Caixin reports that sales increased 51.3% to just under 21,000 units in the first eight months of the year. According to the China Construction Machinery Association, that is almost 90% of annual sales in 2019. FNArena, analyst at Citi, expects steel demand to grow by 1-2%, compared to earlier forecasts of a decline of around -1%. Citi expects iron ore to fall from its current high levels but will remain in the $ 100-120 range for the remainder of the year. Citi had previously forecast that the iron ore would average $ 90 per ton. In their most optimistic scenario, iron ore averages $ 110 per ton in 2021. A key gauge of economic activity in China - responsible for more than half of world steel production and 70% of iron ore imports by sea - published last week showed rapid expansion of the country's manufacturing and construction sectors in August. Caixin's manufacturing PMI rose from 52.8 in July to 53.1 in August, well above analysts' expectations, who were heading for a decline in a month that was usually slow for industrial production. A value above 50 indicates expansion, and the August numbers were the highest since January 2011.