The iron ore price recovery continued in spectacular fashion during its latest session with figures from the Metal Bulletin Ltd showing that the commodity had risen US$2.99, or 5.5%, to US$57.81 a tonne.
After having enjoyed seven straight sessions in the black, the commodity is now sitting at a six-week high having risen almost 24% since hitting a decade low at US$46.70 earlier in the month.
Indeed, there are a number of reasons as to why iron ore may have risen so strongly in recent times, including a surge in oil prices (which will increase iron ore production costs, possibly forcing some miners from the market) and stimulus provided by the Chinese government. However, it seems that the biggest catalyst behind the rally was BHP Billiton Limited's (ASX: BHP) decision to delay its expansion plans.
In its recent quarterly production update, the mining behemoth said that it would still achieve its 290 million tonnes per annum (Mtpa) production target, although it would get there at a slower pace due to its decision to defer its Inner Harbour Debottlenecking project. This is the first sign that the world's largest miners may be beginning to question their expansion plans, which have been one of the primary reasons behind the commodity's 18-month crash.
Where to now?
Indeed, the recent rally has generated an enormous level of excitement amongst iron ore investors who have bid the shares up in the sector significantly higher. Fortescue Metals Group Limited (ASX: FMG), for instance, is up 7.2% today, and 35% over the last fortnight, while BC Iron Limited (ASX: BCI) is up 15% today and 87% over the fortnight.
Meanwhile, BHP Billiton has risen 1.5% for the day, while Rio Tinto Limited (ASX: RIO), Arrium Ltd (ASX: ARI) and Mount Gibson Iron Limited (ASX: MGX) have rallied 2.2%, 1.2% and 4.8%, respectively.
While some analysts have suggested prices may have finally bottomed out; others are sceptical and believe the recovery will prove only temporary. Indeed, there are certainly some positive signs for investors but they also need to remember the risk of enduring heavy losses should the iron ore price suddenly reverse.
