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Chinese Cabbies set Iron Ore Trap


The recent runup in iron ore prices, and shares in the companies that mine the key component in steel making, is a trap.

Analysts think so and so do mining companies' senior management. Investors should heed their warnings.

Followers of the likes of Rio Tinto (RIO) , BHP Billiton (BHP) and Vale (VALE - Get Report) , the three largest iron ore producers, will remember that 2016 was meant to be a year of unmitigated pain. Production growth coupled with slowing Chinese demand was forecast to push iron ore as low as $30 a ton, a level not seen since 2006.

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Yet as the year has unfolded iron ore prices have taken off. Last week the benchmark spot price for ore with 62% content delivered to the Chinese port of Qingdao hit a 15-month high of $68.70 per ton, though it had fallen back to just below $63 by Wednesday.

What's behind this remarkable turn of fortunes? Chinese cab drivers, according to a recent note by Sean Callow, an analyst at Australia's Westpac. Fortunately, for Chinese commuters, he isn't referring...