Iron Ore at Eight-Week High as Morgan Stanley Sees Midyear Peak

Iron ore may post the longest winning run in 15 months should prices that rallied to an eight-week high gain for a sixth day on Wednesday, with Australia & New Zealand Banking Group Ltd. flagging the possibility of further rises.

“Market participants are expecting prices to continue to rise in the coming days,” ANZ said in a daily note. “Sentiment remains more optimistic as the market anticipates a pickup in China’s seasonal steel construction.”

Iron ore entered a bull market last week and is headed for the biggest monthly climb since December 2012 after BHP Billiton Ltd. said it will defer port works in Australia, and smaller suppliers including Atlas Iron Ltd. suspended output. A floor may now be forming, according to ANZ and Pacific Investment Management Co. The commodity remains 69 percent below its record in 2011, and Australian producers’ shares fell on Wednesday.

“It is too early to tell whether this decision comes from a genuine willingness to start managing the supply-side,” Sanford C. Bernstein & Co. analysts including Paul Gait wrote in a report on Wednesday, referring to BHP’s port-works deferral. Still, it’s interesting to note that the subsequent rally “should be sufficient to convince iron ore majors that they are indeed price makers, not price takers.”

Ore with 62 percent content at Qingdao rose 1.3 percent to $59.88 a dry metric ton on Tuesday, the highest level since March 4, according to Metal Bulletin Ltd. Another rise today would match the longest streak since Jan. 3, 2014.

The recent rally was probably driven by mills in China restocking, and prices will likely peak midyear, Morgan Stanley said in a report on Wednesday that kept forecasts unchanged. Gains will be capped by low-cost supply from Rio Tinto Group and BHP, and a seasonal pullback in steel-output rates, it said.

No Net Growth

BHP Billiton lost 1.2 percent to A$32.04 in Sydney on Wednesday, dropping for a second day, as Rio Tinto declined 1.8 percent to A$57.71. Fortescue Metals Group Ltd. sank 7.4 percent to A$2.27, down 17 percent this year.

Daily crude-steel output from major Chinese producers increased 5 percent in early April, researcher said last week, citing data from the China Iron & Steel Association. There’ll be no net growth in iron ore supply in 2015 as additional output from lower-cost producers is offset by the closure of smaller, higher-cost mines, according to CLSA Ltd.

Over 2015, China’s steel demand may decline, the China Iron & Steel Association said, according to a transcript of a briefing on the group’s website. Weak demand may hurt steel-product consumption, the association said.

“Demand from China has been lackluster and reached extremely low levels in February,” Bernstein’s Gait wrote. Although activity rebounded strongly in March, it’s too soon to call for a recovery in steel sectors, he said.

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