Iron ore has been a whild wide, how much higher can they go? - Westpac

Analysts at Westpac noted that the iron ore market has had a wild ride over the last month. 

Key Quotes:

"Mid June, the Metal Bulletin Index was at $53 and the market chat was for a move to $45. Last night, iron ore settled above $70 for the first time since mid-April, up 32% from the lows. 

Now back in June we argued that iron ore markets were too bearish near term and given the aggressive move higher in steel prices the risks were that prices moved higher rather and a move into the mid to late $60s was likely. 

The key to that view was elevated steel prices. As the chart across highlights, our measure of the profitability of a Chinese (hot rolled) steel producer is at the best level we have seen in 8yrs. 

The scenario we were running with was that higher steel prices were being caused by shortages due to illegal/ inefficient steel plant closures. As steel prices rose they would drive higher steel production, consume more port inventory and lift iron ore prices. 

However, with global iron ore production set to rise in H2 plus stubbornly high levels of port inventory, we question how much further iron ore prices can run."