The Iron price is now 1% higher again, same pattern as yesterday, rising after the market closes. And Feb 26 is now in contango, higher than the spot price, 97.4 v 96.2.
As i explained in my master thesis on futures pricing, which i suggest you all read, Chapter 1 of "Models of Futures Market" Rutledge Studies in the Modern World Economy, the futures price is in fact the best unbiased predictor we have of the spot market price in the future. And by being the best predictor it maximises economic efficiency.
If the market is in contango, it means the supply based constraints are far more severe than the standard analyst model assumes:
A future producer could perfectly hedge by selling forward to match the supply expansion, thereby bringing down the future price. The fact this is not occurring means, over the short term it is going to be difficult to expand iron ore production globally. If this is the case, the iron ore spot price is likely to continue to head higher.
Whilst today was ugly for the shorts, i shudder to think what's going to happen to the shorts tomorrow if the iron pricing stays like this, and or goes even higher!
(20min delay)