Iron ore price continues to defy naysayers

The iron ore price has edged higher to $US61 a tonne, despite repeated warnings of an imminent slide.

This picture taken on August 23, 2012 shows dock workers using industrial machinery to sort through iron ores in the yard of Qingdao port in Qingdao (China Out/AFP photo).

The iron ore price has inched higher as the commodity continues to defy warnings that the effect of Chinese stimulus spending so far this year may not last.

Iron ore added 0.3 per cent to $US61 a tonne in the most recent session, according to The Steel Index, from $US60.80 the previous day.

The commodity’s strength over the course of 2016 is surprising many analysts, raising hopes that the market may have bottomed after prices dropped below $US40 a tonne in December 2015.

The resilience has been attributed to speculation in the market, which prompted a series of sharp moves that Chinese exchanges moved to crack down on some months ago, as well as China’s plans for massive investment in its railways and elsewhere to boost its economy.

Investment bank Citi is the latest to warn that current prices are not sustainable, following commentary from mining giant BHP Billiton with its financial results last week suggesting the commodity is likely to ease from here.

“BHP’s view of commodity markets seems to dovetail with Citi’s in that there are short- to medium-term risks in iron ore and coal as the impact of Chinese stimulus that has boosted the 2016 year to date abates,” Citi analysts wrote in a research note.

Citi also weighed in on the effect of the deadly Samarco disaster, after a tailings dam burst at a joint venture between BHP and Brazilian miner Vale last year.

“[An] independent technical expert report into what caused the Samarco tragedy is still due in second-half 2016,” Citi wrote after a roundtable with BHP.

“Any resumption would be at ~60 per cent of capacity (30mtpa so ~19mtpa) if permits to restart and use old pits for tailings can be obtained.

“We assume a restart in 2018, although 2017 is possible if everything goes smoothly.”

Analysts have raised concerns that iron ore supply growth, even at lower levels than in recent years, is still outstripping demand, which could cause prices to fall over this year and next.

In London trade, BHP shares lost 2.1 per cent, while Rio Tinto fell 0.8 per cent.