london<u+2014>the price of iron ore jumped friday, climbing to a more than two-year high on a combination of better-than-expected demand, slower-than-expected iron ore supply growth in recent months and speculative trading activity. the benchmark spot price for delivery of the steelmaking ingredient into china rose 7.4% to $79.70 a metric ton, marking its highest level since october 2014, according to data from the steel index. brokerage firm sp angel said in a note the rise is <u+201c>driven by a potential pro-stimulus trump administration and continuing chinese government economic growth support measures. iron ore prices have risen 18% since business tycoon donald trump won the u.s. presidential election this week. other commodities such as copper have also rallied on expectations that mr. trump will aim to fulfill his promise of spending more on infrastructure to rehabilitate the country<u+2019>s ailing industrial base. the iron ore price rise has defied some analysts who expected a price fall this year as some of the major miners suffered production setbacks and steel demand in china, the world<u+2019>s largest iron ore consumer and steel producer, swung to growth from contraction. <u+201c>can i justify $80 a ton [for iron ore]? absolutely not,<u+201d> said macquarie group analyst colin hamilton who is still sticking to his $50 a ton average price forecast for this year. <u+201c>all of that is...speculative activity,<u+201d> he noted. jefferies analyst chris lafemina, however note that the price rise isn<u+2019>t random. <u+201c>what is happening is that we<u+2019>re seeing commodity price inflation,<u+201d> he noted, referring to a sudden rise in coal prices that have had knock on effect on other commodities such as steel. on the demand side, china, which typically accounts for about half of the world<u+2019>s total, is forecast to grow its steel demand by 0.5% this year compared with previous expectations for a decline, said the world<u+2019>s largest steelmaker, arcelormittal , this week. this is because is chinese economic stimulus measures introduced earlier this year that have boosted residential and infrastructure investment. on the supply side, the world<u+2019>s four largest iron ore producers, brazil<u+2019>s vale sa, anglo australian miners rio tinto plc and bhp billiton ltd , and australia<u+2019>s fortescue metals group ltd. have expanded their output by less than expected this year. the big four account for nearly 80% of the 1.4 billion ton seaborne iron ore market, according to jefferies. <u+201c>this market is a lot tighter than what consensus<u+201d> had expected, said rbc capital markets analyst tyler broda. global iron ore supply and demand has swung to a 40 million ton deficit this year compared with a 100 million tons surplus last year, according to macquarie. this is partly due to lost supply from 31 million-ton-a-year brazilian iron ore producer samarco, which is jointly owned by vale and bhp. the venture has been shut since november 2015 when a dam burst, killing 19 people and polluting hundreds of miles of rivers. rio tinto, the world<u+2019>s second-largest exporter of the steel ingredient after vale, also revised this year<u+2019>s output guidance down to as low as 325 million tons from australia compared with previous guidance of 330 million tons following setbacks in automating its railway fleet. additional west african output could ramp up to meet demand at these price levels, said mr. hamilton, but is unlikely to do so unless prices stick around these levels for longer. in a potential sign of tough times in the iron ore market, rio tinto agreed last month to sell its entire stake in the simandou project in guinea to aluminum corp. o f china or chinalco for $1.1 billion to $1.3 billion. rio tinto, which first began developing the project in 1997, had aspirations to develop the $20 billion project into one of the world<u+2019>s largest and lowest-cost iron ore mines, possibly rivaling its own in australia and vale<u+2019>s in brazil. rio tinto, however, struggled to secure financing to develop the project. write to alex macdonald at alex.macdonald@wsj.com
iron ore rises to more than two-year high - wsj
alex macdonald