This article first appeared on GuruFocus.

Iron ore prices are pushing higher again, and the move is happening even as a key supply overhang has just been resolved. After a seven-month dispute between BHP Group (NYSE:BHP) and China Mineral Resources Group Co. was settled, stockpiled ore that had been stuck at ports has now been cleared to re-enter the market. Despite that added supply, futures in Singapore are still holding just below $107 a ton, suggesting the market is looking past near-term inventory normalization and focusing on a different set of drivers.

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That shift in focus is increasingly tied to costs. Analysts at Commonwealth Bank of Australia point to rising diesel and freight expenses linked to tensions in the Middle East, which are lifting the industry cost curve and potentially putting a floor under prices. According to their estimates, around 170 million tons per year of iron ore supply roughly 10% of China's pig iron output had cost support between $80 and $100 a ton last year. If those cost thresholds move higher, iron ore pricing could stay elevated for longer than the market might have expected, even as previously constrained supply returns.

At the same time, the broader demand backdrop has not improved. China's core steel demand drivers remain under pressure, particularly construction, and additional supply is expected as shipments from Guinea's Simandou project begin ramping up from May. Even so, near-term price action remains firm, with iron ore rising 0.5% to $106.90 a ton in Singapore and futures on the Dalian Commodity Exchange climbing 0.7% to 786 yuan per ton, alongside gains in Shanghai steel contracts. The setup suggests a market that could be caught between weakening fundamentals and rising cost support in the months ahead.

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