Instead of iron ore price falling below $30 per tonne, the iron price has recently increased by 11.8% this week and there has been a total gain of nearly 50% year to date. The iron ore price has hit a peak in 10 months. Mike Henry, head of BHP’s Australian operations told the audience at the Melbourne Mining Club that the price of iron ore is unlikely to stay at $60 per tonne as more “low-cost volume” was coming to the market. Tom Price, analyst at Morgan Stanley mentioned, “It is difficult to make a case for iron ore remaining above $60 a tonne” and predicts that the prices will be eventually falling back to $45-$55 a tonne because of the ongoing expansion in seaborne supply.
This temporary surge in iron prices is due to the low future production estimate announcements by Rio Tinto and BHP. In this way, BHP announced that in 2017 they will be reducing their production by 15 million tonnes. Iron ore price are expected to plunge later in the year as Vale is pushing ahead with Roy Hill Project and S11D, one of the industry’s biggest development project Aside from the low production forecast announcements by mining giantys, weak US dollar boosted the commodity prices across the board.
The major driver for the iron price is China as it is the largest producer and consumer of steel. Shanghai steel prices have surged 70 per cent from their 2015 trough, boosted by mills restocking ahead of the key summer construction period and a huge credit surge. Alarmed by slowing economic growth and capital outflow Chinese policymakers injected a huge amount of cash into its banking system earlier this year, a move that boosted steel-intensive construction and infrastructure projects.
Hume, Neil. “Iron Ore’s Surprise Rally Looks on Borrowed Time – FT.com.” Financial Times. N.p., n.d. Web. 25 Apr. 2016.