A breath-taking rally in iron ore prices in recent weeks has put the sector back in bull market territory, but strategists warn that the upside may be short-lived.
The beleaguered commodity has recovered 25 percent since hitting a ten-year low of $46.70 per metric ton earlier this month; a 20 percent gain from recent lows is typically considered in bull market territory.
Spot prices traded just below $60 a ton on Tuesday, extending a two-and-a-half week run and pushed Australia's benchmark stock index to seven-year highs on Monday.
"Let's not get too carried away. Iron ore is still down 60 percent over the course of 12 months and the supply-demand response has not changed," warned Gaurav Sodhi, resources analyst at Intelligent Investor. This [rally] is a short-term bump; it's not suggestive of a change of trend."
Capital Economics agrees: "The bigger picture is that the market remains massively oversupplied. As such, we expect prices to fall back once market dislocations ease," senior commodities economist Caroline Bain said in a note.
Increased Chinese demand for the key steelmaking ingredient is fuelling current price gains. The China Iron and Steel Association (CISA) reported on Friday that output rose 5.1 percent in the first ten days of April compared with the previous ten days.
An additional boost came from BHP Billiton's recent announcement to delay plans to expand its Port Hedland facilities, signaling reduced output. April's reserve requirement ratio cut from the People's Bank of China also lifted sentiment on expectations the stimulus will translate to more infrastructure spending.