What: Iron ore continued its upward trajectory overnight, adding US79 cents to nearly US$60 per tonne. The recent gains add to a surging rebound for the bulk commodity which, after hitting a decade low in early April near US$47 a tonne, has now rallied over 25%.
Despite the jump higher it does need to be kept in the context of the huge price fall experienced over the past 12 months which has seen iron ore fall from over US$100 a tonne.
So What: One of the biggest beneficiaries of the rebounding iron ore price has been Fortescue Metals Group Limited (ASX: FMG), which is still 22% higher over the past month despite being down around 5% at lunchtime on Wednesday.
In contrast, BHP Billiton Limited (ASX: BHP) is up 4.7% and Rio Tinto Limited (ASX: RIO) is up 3.1% over the month; while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is actually lower, down 0.6%.
What now: The rebound in the iron ore price and in Fortescue's share price is great in the short term for investors positioned to benefit, however, it does still beg the question of whether there is really a reason to rejoice and if this could simply turn out to be a dead cat bounce?
Personally, I wouldn't like to be betting on the sustainability of this rally for two main reasons. Firstly, it appears that the global iron ore market is massively oversupplied with the major producers determined to add even further volume to the market. Secondly, question marks remain regarding the true state of underlying Chinese demand.
