Iron ore price gives up recent gains

The London shares of Australia’s big miners declined overnight as iron ore prices fell to a two-and-a-half-week low.

The key export is now teetering precariously low to the $US55 a tonne threshold, the official government forecast in the May budget.

The iron ore price has fallen to a two-and-a-half-week low, giving up all the gains it booked on last week’s news of restrictions on steel production in one Chinese steelmaking hub.

Iron ore lost 2 per cent to $US55.10 overnight, according to The Steel Index, from $US56.20 the previous day, and its lowest close since July 1.

The declines sparked a downbeat session for Australia’s major miners in London. BHP Billiton dropped 2.9 per cent, while Rio Tinto lost 3.5 per cent.

The commodity’s short-lived spike last week was also attributed to planned Chinese stimulus and likely misguided hopes of a boost from a ruling against China’s presence in the South China Sea.

The key export is now teetering precariously low to the $US55 a tonne threshold, the official government forecast in the May budget. If it returns to sub-$US55 trade for any sustained length of time, it would have a negative effect on tax receipts.

The fall comes as major miners publish their production updates. Rio Tinto (RIO) yesterday reported first-half production of 160.8 million tonnes, slightly less than the market expected.

Meanwhile, BHP Billiton’s (BHP) fourth-quarter sales update is due this morning. The miner recently lowered its guidance for its West Australian operations and will also take a hit from the temporary closure of the Samarco mine in Brazil after a tailings dam overflowed.

Despite the slightly weaker output from the mining giants, supply continues to outpace demand, leading several analysts to predict the iron ore price will continue to fall over the second half of the year.