What's going on?

Iron ore is the key ingredient for steel � and on Monday its price soared by almost 20% for its biggest one-day gain�ever!

What does this mean?

Iron ore is one of those commodities that sold off a huge amount as China�s economic growth slowed down. At the beginning of 2016, most people would have said that it would remain at a very low price because it looked like there was too much supply and not enough demand for it. But it�s up 46% in price so far this year and up 70% from its low in December.

China has caused the rebound. Part of it is seasonal as Chinese steel mills restock ahead of the typically busy spring and summer months. Some of it is probably due to the Chinese government doing some things to stimulate the economy (see our other article today). And another part is likely that so many investors had bet on iron ore going down further, that when things turned around even briefly, those investors got cold feet and starting buying iron ore to cover their negative bets before they lost too much money (it�s a classic �short squeeze�).

Why should I care?

For markets: Mining stocks are winning. If sustained, the higher iron ore price would make a huge difference to the profit and stock prices of miners such as BHP Billiton and Rio Tinto. Mining is the best performing major sector among global stocks so far this year � mainly because of the rebound in price of key commodities like iron ore or gold (amongst others).

The bigger picture: Whether the rebound is sustainable is questionable. China is resorting to its old strategy of encouraging companies to borrow money and build stuff (i.e. not its �new� strategy of becoming a more service-based economy). China can�t afford to do this forever – although it can probably do it for a while longer. Quite how long is a question on a lot of people’s�minds.