Iron ore was already on a hot streak since bottoming in December 2015, but the Chinese government’s promise to provide the stimulus required to boost economic growth gave the metal much more steam.
Prices are up 66 percent after Monday’s 19 percent surge, because the market anticipates higher steel consumption in China, and for that reason, iron ore demand.
Michael Gambardella at J.P. Morgan considers this news over the past weekend from China as the second positive development for U.S. steel producers, despite noting supplying cuts will be necessary to push domestic steel prices higher.
The analyst believes Usa Steel Corp., AK Steel Holding Corp., Steel Dynamics Inc. and Nucor Corp. may benefit most from near-term supply reductions.
Gambardella also noted that Cliffs Natural Resources Inc.’s earnings and free income improve dramatically at spot iron ore prices.
The company’s current market cap of roughly US$620 million is roughly identical to the change in free income in will see for the following 2 yrs at current prices.
“Rapid interest in the integrated producers remains at high levels,” the analyst said, pointed towards the short curiosity about U.S. steel at 37 per ken of their float and AK Steel at 24 percent.
Last week, AK Steel announced a US$30 per ton price increase for carbon sheet products, which demonstrates both healthy U.S. demand and supply cuts.
Given several positive data points of late, Gambardella said “short sellers are likely to find it increasingly difficult to portray possibility of near-term bankruptcies.”