Iron ore price leaps 3pc to a fresh three-and-a-half-month high

The iron ore price has soared to a fresh three-and-a-half-month high, despite a downbeat assessment from BHP’s CEO.

A haul truck is loaded by a digger with material from the pit at Rio Tinto Group's West Angelas iron ore mine in the Pilbara. (Ian Waldie/Bloomberg)

The iron ore price has surged to a fresh three-and-a-half-month high after BHP Billiton chief executive Andrew Mackenzie effectively said the worst of the commodity cycle was over.

Iron ore jumped 3 per cent to $US61.80 a tonne overnight, according to The Steel Index, from $US60 the previous day.

The commodity is now trading at its highest level since May 3, when it settled at $US62.50.

While unveiling the mining giant’s worst ever loss, and warning it was too early to call the bottom for commodities, Mr Mackenzie offered reasons for investors to be hopeful.

“There is some sense that prices have stopped falling, as opposed to being in free fall,” he said.

Despite the downbeat headline figures, investors appeared cautiously optimistic on BHP’s commentary, sending shares 0.7 per cent higher in London trade. Rival Rio Tinto rose 2.1 per cent.

Some analysts also struck a similar tone of lukewarm optimism on seeing the results. Research house Bernstein said the extent of BHP’s cost savings were impressive, although in line with what the rest of the sector was delivering, while Investec said the result was moderately encouraging.

But Mr Mackenzie does not expect iron ore to strengthen from here, warning that the commodity’s surprising resilience this year is a “temporary effect” of extra stimulus in China and a slower ramp-up of output from the biggest low-cost producers.

“That ramp-up will continue, and I don’t think there will be a corresponding increase in demand to offset that,” he said. “Therefore, we think that prices have more risk to the downside than the upside going forward.”

Mr Mackenzie earlier this year called an iron ore price in the low $US50s “more realistic”. His assessment is more bullish than some analysts who are predicting a fall into the low $US40s over this year and next.

Morgan Stanley even expects the key export to reach a low of $US35 a tonne in the fourth quarter of this year as Chinese steel mills’ demand falls ahead of the northern winter, the most bearish forecast offered so far.