Iron ore is Australia's biggest export earner: 481 million tonnes of the commodity was predicted to have been shipped out of the country last year. This year, it is expected to rise to 543-million.
Much of that will go to China, which will demand 769 million tonnes from around the world.
But can that rally continue?
DIRTY BUSINESS - 'HOW MINING MADE AUSTRALIA' will air Sunday January 6th, 13th and 20th at 8.30pm on SBS ONE.
As the global economy grows, more skyscrapers and infrastructure projects are built, feeding the demand for the key ingredient in the steel making process: iron ore.
But the European debt crisis rattled confidence and sent iron ore prices to a three year low. Even China, the world's biggest consumer of iron ore ran down stock piles of the material to a two year low.
That's all changing, after European action and measures to avert a US fiscal cliff have renewed global confidence. And yesterday's Chinese trade balance data allayed fears of an economic hard landing, as imports and exports rose way beyond expectations. China shipped in four times as much iron ore than it did in the month of November.
"We think that the Chinese are buying up iron ore, ahead of the Cyclone season here in Australia, one of which is happening right now, because supply can be disrupted," said ANZ Chief Economist Warren Hogan.
Iron ore mining bans in India, along with a long term commitment by China's new leadership to urbanisation, all contributed to a near doubling of the iron ore price since September to a 15-month high.
"Even though iron ore has run very hard, it's not going to impact their price as much, because other commodities such as copper, or oil and gas in BHP's case might be going in completely the opposite direction," said Fat Prophets Resources Analyst Fat David Lennox.
As for future iron ore prices, "China will again turn to its own iron ore mines to supplement what it requires, and we think that will keep the lid on prices rallying quite hard," he said.
A softer iron ore price is also suggested by its historical correlation with the official cash rate.
Iron ore reached 191 dollars in 2011, before falling. Interest rates followed a similar path, peaking two years ago.
NAB has today predicted further falls in the cash rate - to 2.25per cent by the end of the year.
"We still need low interest rates here, to assure the pick-up in the housing sector, in residential construction, and this sort of thing, getting the metropolitan centres investing again as mining slows," said Warren Hogan.
