Yesterday, our article titled "Has Iron ore Bottomed Yet," mentioned China's recent approval of over $157 billion in infrastructure spending as a good omen for the iron ore industry. This we say since it has increased speculations of further quantitative easing in the world's second-largest economy, which has been undergoing one of its worst phases, ever since the global financial crisis. The stimulus will result in strengthening of commodities' prices, as their demand is expected to improve.

 

Meanwhile, although China's iron ore imports for August dropped by a huge 20.9% on a YoY basis, the dip is primarily a result of continuously declining prices of the commodity. In fact, on the basis of tonnage, they were actually up by 5.7%, and reached a three-month high of 62.45 million tons. According to an iron ore and drybulk trader at Barclays Plc in London, Richard Lee, "China has shown its hand. It intends to add a number of new projects and mills are now short, and therefore they are restocking."

 

Consequently, amidst these developments, iron ore prices saw a rebound as the benchmark iron ore (62% iron content) augmented by 5.5% to reach $100.2 yesterday, a 3-week high. Iron ore giant, Cliffs Natural Resources (CLF), gained 6.4% yesterday while steel companies [especially U.S. Steel Corp (X) which recorded a 4.2% gain] also continued to rise, as Market Vectors Steel ETF (SLX) posted a 2.3% gain. The news was also good for coal companies (as metallurgical coal is another major raw material of steel), as Market Vectors Coal ETF (KOL) rose by 1.5%; the biggest gainers were Alpha Natural Resources (ANR) (6.1%) and Peabody Energy Corp (BTU) (2.8%).(Source: Seeking Alpha)