The iron ore price is flying, taking company share prices with it

The spot iron ore price continues to defy critics (including myself) and jumped 5% on Friday to US$53.75 a tonne.

No wonder iron ore miners are rallying hard today, with BC Iron Limited (ASX: BCI) up 32% to 16.5 cents, Atlas Iron Limited (ASX: AGO) up 20% to 1.8 cents, Fortescue Metals Group Limited (ASX: FMG) up 12.5% at $2.80 and Arrium Ltd (ASX: ARI) up 11.1% to 2 cents.

The iron ore price is now up 40% in less than three months, and well off the lows of US$38.30 a tonne set in December 2015.

Most of the gains appear to be due to steel mills restocking, weather-related disruptions to Australian exports from Port Hedland, and with the world’s largest producer, Brazil’s Vale, ordered to temporarily close one of its ports over alleged environmental breaches in January. However, all of these factors are either seasonal or temporary.

But it could also be a change in sentiment for commodities globally. Steel prices have gained, as have other commodities, including oil and copper.

Copper prices have surged as stockpiles have shrunk, including a rise of 18% since hitting their lowest levels since 2009 in January 2016. Copper miners around the world appear to have taken steps to reduce enough production to stem the oversupply of copper, and stronger US economic data suggests demand may increase.

Brent crude oil gained 4.5% as well and is now trading at around US$38.72 a tonne.

Foolish takeaway

More gains for iron ore could be ahead tonight too, after Chinese iron ore and rebar (steel) futures jumped on Friday evening. Both futures contracts rose 4.9%, but could fall after China lowered its growth forecasts, to between 6.5% and 7% from last year’s target of 7%, over the weekend.

Call me a cynic, but tend to think the iron ore price rally won’t and cant last. Unlike copper, iron ore supply is still increasing, and steel demand is unlikely to be as strong as expected.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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