The iron ore price has edged higher, pushing back towards the two-year high it recently reached and flying in the face of a pronouncement that its stunning rally was a “fluke”.
Iron ore rose 0.5 per cent to $US78.40 a tonne overnight, according to The Steel Index, from $US78 in the previous session.
The commodity has been on a sharp rally followed by a rollercoaster ride over the past few months, soaring from the mid $US50s to breach $US80, then whipsawing back and forth between the $US70 and $US80 levels.
The bounce supported trade in Australia’s major miners in London, with BHP Billiton rising 2.7 per cent and Rio Tinto adding 1.6 per cent.
A concurrent rise in the price of coking coal, another key steelmaking ingredient, has dragged iron ore higher, with gains exacerbated by speculation and short covering. Even before the recent eye-popping gains, iron ore spent much of the year surprising investment banks with its ongoing resilience, forcing a number of analysts to temper their bearish forecasts.
Citi yesterday reaffirmed its negative view on iron ore and coal, tipping bulk metals to fall 30 per cent from current levels.
“Their outperformance in 2016 was a fluke and largely driven by domestic politics in China,” Citi analysts wrote.
Even so, the bank lifted its 2017 forecast for iron ore 22 per cent to $US56 a tonne, from $US46 previously. It also upgraded BHP Billiton, Rio Tinto and Fortescue Metals Group to neutral ratings from sell.
Meanwhile, brokers Shaw and Partners warned that the price rally could incentivise some higher-cost commodity players to restart projects that were unprofitable when prices were around $US40 a tonne and falling.
“We consider it likely that the massive run up in the prices of metallurgical coal, iron ore and oil will result in a supply response as new production is accelerated, old mines are brought on stream and new technologies (shale gas) become economic once more,” Shaw and Partners said in a note.
Source: The Australian.Com