Iron ore has rallied back into a bull market. Prices are surging as China’s crackdown on steel output this winter runs down inventories, helping mills’ profitability and stoking demand for high-grade ore even as investors discount signs of ample supply.

Spot ore with 62 percent iron content jumped 3.7 percent to $72.68 a metric ton, the highest since Sept. 14, according to Metal Bulletin Ltd. That’s more than 20 percent up from the low hit in late October, meeting the common bull-market definition. Earlier, futures in Asia rallied, with the SGX AsiaClear prices rising 2.9 percent to $71.29 a ton.

Iron ore’s gains which will aid miners including Rio Tinto Group, BHP Billiton Ltd. and Vale SA are buttressed by China’s unprecedented push to rein in steel output this winter to cut pollution. While that initiative may result in less steel being made in the world’s top producer, lowering overall ore demand for several months, it’s also supercharged prices as inventories collapse. Citigroup Inc. has singled out iron ore’s bullish prospects in the first quarter of 2018, raising price forecasts for both next year as well as for 2019.

“The rally is expected to be driven by a further tightening of the Chinese steel market, Chinese steel mills’ active restocking of high-grade iron ore, seasonally weak seaborne supply, and a recognition that iron ore supply growth passes its peak during the first quarter of 2018,” Citi said in a report that laid out the bank’s views on commodities for the coming year.

As China’s crackdown on mills gathers pace, holdings of reinforcement bar fell 9.4 percent last week to the lowest level in data that stretches back to 2010. At the same time, spot rebar prices have rallied to a multi-year high, and futures in China advanced again on Monday. Those trends are aiding mills’ profitability in the country that accounts for half of worldwide steel production.

Source: Bloomberg

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