Iron ore price rockets past $US70 a tonne to a near two-year high

Shares in the big miners spiked overnight, as the price of iron ore rocketed to its highest level in close to two years.

Iron ore being unloaded in December from a cargo ship at the Port of Rizhao, in eastern China’s Shandong province. (IMAGINECHINA/ASSOCIATED PRESS)

The iron ore price has soared to its highest level in close to two years as a speculation-fuelled rally continues to put a rocket under Australia’s largest miners.

Iron ore added 4.7 per cent to $US71.00 a tonne overnight, according to The Steel Index, from $US67.80 the previous day.

In London trade, Rio Tinto shares spiked 6.8 per cent, while BHP Billiton jumped 4.6 per cent. The gains could boost the stocks when the ASX opens, particularly after a more upbeat than expected session on the US market overnight.

The commodity eclipsed its previous 2016 peak to reach its highest point since January 6, 2015, when it settled at $US71.10.

The month-long rally now consists of a streak of 23 sessions with only one drop.

Iron ore has gained 30.5 per cent since reaching a trough of $US54.40 on October 7 — when it dipped slightly below official Budget forecasts of $US55 a tonne and appeared to follow the predictions of many analysts that a level in the $US40s or low $US50s was more sustainable.

Analysts say the surge in coking coal prices to a five-year high of $US307 a tonne has been propelling iron ore higher, with some hoping a looming seasonal fall in steel production will have a modest impact on commodity prices.

“Price rerate winners of 2016 include China steel and most of its raw materials: iron ore, met-coal/coke, manganese ore,” Morgan Stanley analysts wrote in a research note.

“China’s credit-backed, steel-intensive infrastructure programs have pulled 40 to 50 million tonnes more crude steel from its industry than the market forecast for 2016, using about 20 to 30 million tonnes per annum less capacity.

“So China’s steel prices have lifted 50 to 60 per cent year to date, allowing input costs to rise by at least the same scale too.”

Morgan Stanley said the usual seasonal September-October pullback in steel production has been delayed this year.

“So while we still expect it to occur by winter, the impact on prices will probably be mitigated by Asia’s ore traders positioning for another year of stable steel production in China.”