IRON ore, Australia’s single largest export item, should find a floor at $US50 a tonne with the supply glut to evaporate quicker than first thought, the ANZ Bank says.
Senior commodity strategist Daniel Hynes says improving fundamentals in China, rather than speculators, are delivering a more optimistic outlook for the commodity.
Iron ore has been on a rollercoaster ride since the start of the year.
The price of the key steelmaking ingredient started the year at $US43 a tonne and surged more than 60 per cent to burst through the $US70 mark in late April. It has since lost some ground to be trading around $US55 a tonne.
The price rise follows surprise production cuts by BHP Billiton and Rio Tinto, a slower than expected ramp up at Gina Rinehart’s Roy Hill operations and stronger than forecast demand from China.
Mr Hynes said the price was likely to hold on to most of these gains with construction in China’s housing market beginning to pick up.
Stockpiles at Chinese steel mills were also low, providing further price support, he said.
“Improving fundamentals, rather than speculation, have been the real drivers behind rising iron ore prices,” Mr Hynes said in an investment note.
“And despite rising speculation in Chinese futures contracts, we are not expecting prices to push back below $US50 a tonne on a sustainable basis.”
The rebound in iron ore prices has been a big factor in the spike on the benchmark ASX 200 index, which has shot up 8 per cent in the past four weeks.
But the Australian sharemarket faces a soft opening after falls on Wall St and disappointing data from China, where retail sales, factory output and investment for April, was weaker than expected.
US stocks finished last week on a dull note after falls in the oil price and disappointing earnings results from retailers offset solid monthly retail sales data.
AMP’s head of investment strategy and chief economist, Shane Oliver, expects sharemarkets to remain volatile this month.
“May always seems to be a nervous time as now everyone knows about sell in May and go away, come back on St Leger’s Day. Global growth ¬remains fragile and uncertainty lingers around the Fed and China,” he said.
“However, beyond near-term volatility, we still see shares trending higher this year helped by a combination of relatively attractive valuations, further global monetary easing and continuing moderate global economic growth.”
Source: courier mail