Big miners surge as iron ore price soars to two-month high

The major miners rallied in London trade overnight, as the price of iron ore surged above the $US60 a tonne threshold.

A reclaimer working in the Yandicoogina stockyard and loading a conveyor with high grade iron ore in Western Australia's Pilbara region. (AFP PHOTO)

The iron ore price has soared above the $US60 threshold to reach a two-month high, putting a rocket under Australia’s major miners in London trade overnight.

The enthusiasm from traders, propelled by a drop in forecast shipments and a simultaneous rally in coal prices, could offer a boost to mining stocks on the ASX today.

Iron ore surged 4.9 per cent in a single session overnight to $US61.60 a tonne, according to The Steel Index, from $US58.70 the previous day. Dalian iron ore futures also pushed higher.

The commodity is now trading at its highest level since August 23, when it also settled at $US61.60, and has come within a whisker of its three-month peak reached on August 16 of $US61.80.

The key export has notched up 12 straight sessions without a fall, and its rally will be welcome news in Canberra, given the federal Budget’s sensitivity to iron ore prices.

In London, BHP Billiton shares gained 3 per cent, while Rio Tinto jumped 4.5 per cent.

Iron ore’s rally comes as Vale has reduced its production guidance for 2017, while Rio Tinto has cut its shipments forecast for 2016, part of a trend of modest supply which Credit Suisse analysts have suggested could continue to provide support to prices.

The commodity is also following a rise in the price of coking coal, which is also used in steelmaking. Analysts told Bloomberg that a shortage in coal supply was unlikely to improve before the end of the year, boosting steel prices and production, which also benefits iron ore.

Yesterday pure-play miner Fortescue Metals Group told investors that demand for its product remains strong and the market was in balance as low cost seaborne ore has displaced Chinese domestic production.

Analysts largely still expect iron ore to fall back into the low $US50s or $US40s as even weak supply growth outpaces demand, although several banks have recently upgraded their near-term forecasts given the commodity’s stubborn and surprising strength since reaching a trough below $US40 in December last year.