Iron ore price slips as BHP warns of future falls

The iron ore price dipped to $US61.10 a tonne overnight, as BHP warned of additional supply putting pressure on prices.

An iron ore loading port in east China's Shandong province.

The iron ore price has edged back from yesterday’s three-and-a-half-month high but remains strong despite this week’s warning from BHP Billiton that more pain for the commodity could be ahead.

Iron ore fell 1.1 per cent to $US61.10 a tonne overnight, according to The Steel Index, from $US61.80 the previous day.

The move comes after mining major BHP effectively said the worst of the commodity rout was over, but warned this year’s strength in the iron ore price was temporary and unlikely to be sustained.

The surprising resilience of the commodity in recent months has been driven by the Chinese government’s economic stimulus plans and speculation on prices.

The price has been hovering well above analyst forecasts, which are clustered in the $US40s and low $US50s, offering some short-term relief to both major and junior miners that have raced to slash costs in recent years as a glut of the commodity and falling demand have weighed.

Some analysts welcomed BHP’s moves to cut costs, as well as a cash flow performance that could have been worse.

“All key earnings and cash flow metrics came in ahead of our expectations on the back of stronger cost out performance,” Macquarie analysts wrote in a research note.

“The recent recovery in commodity prices now presents upside risk to our base case valuation.”

In London trade, BHP shares fell 0.3 per cent, while Rio Tinto lost 2 per cent.