Iron ore increases 4.5%

Iron ore has bounced back strongly this week, gaining 4.5%, which has taken its price back to $137.10 a tonne after having dropped to around the US$130 per tonne mark.

Historically, the commodity’s price has significantly weakened in the third and fourth quarters as China goes into its winter period, which affects the demand from and the output of Chinese steel mills. For example, whilst the steelmaking ingredient was priced at US$117 per tonne in August last year, it plunged to just US$87 a tonne by September.

This year however, strong Chinese demand and lower stockpiles at steel mills have kept the prices strong. It dropped a modest 8% to US$131 in September but bounced back strongly this week. Platypus Asset Management resources analyst Anna Kassianos said “We have seen a bounce that should be supported into December.”

Foolish takeaway

Iron ore miners, including BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), are all ramping up their production levels of the commodity, and their shares have risen strongly as confidence returns to the sector.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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