The iron ore price has jumped to a two-week high as China agreed not to expand its steel production during high-level talks with US officials.
Iron ore rose 3.4 per cent to $US52.30 a tonne overnight, from $US50.60 the previous day.
The commodity has now risen for three straight sessions and is at its highest point since May 23, when it closed at $US52.70.
US Treasury Secretary Jacob Lew earlier said rising production of Chinese steel was distorting markets, but after the talks he said Chinese officials had committed to avoid targeting an expansion of the country’s steel industry.
The commodity’s rise also follows a decrease in iron ore exports to China from Port Hedland. Exports fell to 31.7 million tonnes in May, from 32.6 million in April, and were steady compared to May last year, the Pilbara Ports Authority said.
But total iron ore exports from the port increased to 39.4 million tonnes in May, from 37.7 million in April and 38 million in May 2015.
Despite occasional talk of Chinese plans to boost spending on infrastructure, the iron ore market has remained in structural oversupply for some two years and any hint of supply constraints often gives the price a short-term boost.
But prices are widely expected to edge lower from current levels. Even though analysts at Citi yesterday upgraded their forecasts for the commodity, they still expect a fall to an average of $US49 a tonne this year and $US42 next year, dropping to $US38 in 2018. Citi’s forecasts are noticeably lower than the $US55 a tonne price adopted in last month’s Federal Budget.
The bank also expects junior miners to be pushed out of the market as prices stay too low to incentivise production.
In London trade, BHP Billiton lost 0.7 per cent, while Rio Tinto fell less than 0.1 per cent.
Source: The Australian