Iron ore prices have plunged in the last two months from USD 180 per tonne to around USD 118 per tonne. Macquarie Commodities Research puts this down to aggressive destocking by Chinese steel mills and sees upside ahead.

Macquarie predicts easy USD 20 to USD 30 rebound in iron ore prices

Macquarie said that current price levels are not reflective of real demand weakness or substantial oversupply.

Instead, the firm has been watching iron ore inventory at 50 smaller steel mills which during previous price slow downs, from January to March and May to July, fell to 28 days of use. In contrast, inventory at mills’ yards and in port and transit has slumped to just 21 days towards the end of October.

According to Macquarie, the pace of destocking is unsustainable and a Chinese swing from destocking to just moderate restocking could add 80 million tonne per annum to global demand.

Macquarie said that “In turn, the firm expects the first USD 20 to USD 30 per tonne of a recovery should be easy. We therefore expect iron ore to be trading above USD 140 per tonne by the end of 2011.”

(Sourced from www.theajmonline.com.au)