Iron ore price rallies to just shy of $US75 a tonne mark

The iron ore price has continued to defy bearish forecasts, lifting back to within a whisker of the $US75 a tonne mark.

A mine worker watches as 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. (Photographer: Ian Waldie/Bloomberg)

The iron ore price is continuing to defy gravity, lifting back to within a whisker of the $US75 a tonne mark as traders continue to digest the price upgrades from previously bearish Goldman Sachs analysts.

Iron ore added 1.5 per cent to $US74.90 a tonne overnight, according to The Steel Index, from $US73.80 the previous day.

The commodity has been moving sharply despite efforts from Chinese exchanges to clamp down on speculation and hot money flowing into the market, almost reaching the $US80 a tonne level earlier this month before dropping back below $US70 and then rebounding.

The commodity has been surprisingly strong this year on the back of Chinese stimulus plans, but the most recent rally extending for more than a month has been prompted by a surge in the price of coking coal, as well as speculative trade and short covering, and optimism about US president-elect Donald Trump’s infrastructure spending proposals.

Analysts have moved to upgrade near-term estimates for iron ore, with Goldman earlier this week lifting its three-month forecast to $US65 a tonne.

Tellingly, the bank — which previously had one of the most bearish views of the commodity, with a long-term forecast of $US35 — has also lifted its long-term estimate to $US45.

Such a price is well below current levels and also low enough to put pressure on federal government tax revenues, but the revision indicates higher confidence that the market can come back into equilibrium.

“While the need for large cuts in seaborne supply has been postponed to 2018 due to a more balanced market in 2017, we expect Chinese steel demand to weaken starting in 2018 and the iron ore inventory restocking process to run into physical constraints eventually,” Goldman analysts said in a research note.

“As a result, we still expect prices to revert to the marginal cost of production in second-half 2018.

“Political uncertainties at the macro level and elevated levels of port inventory at the micro level suggest significant risks to our forecasts. We expect the high volatility seen in the iron ore market in 2016 to continue.”

In London trade, BHP Billiton shares rose 2.2 per cent, while Rio Tinto added 0.9 per cent.