Iron ore price snaps four-session losing streak as S&P lifts forecast

The iron ore price has inched higher, as Standard & Poor’s upgraded its forecast for the steel-making commodity.

Fortescue Metals Group's iron ore stockpile is transferred onto a conveyor belt for loading into an iron ore carrier, in Port Hedland (Ron D'Raine/Bloomberg News)

The iron ore price has snapped its four-session losing streak as ratings agency Standard & Poor’s upgraded its forecast for the commodity and lifted its credit rating outlook for mining giant Rio Tinto.

Iron ore added 0.3 per cent to $US59.00 a tonne overnight, according to The Steel Index, from $US58.80 the previous day.

S&P lifted its outlook for Rio Tinto’s debt to stable from negative, affirmed its long-term rating of A-, and raised its short-term rating to A-1 from A-2, due to a brighter outlook for a range of key commodities. The move follows a similar call by Moody’s earlier this month.

The agency said it has lifted its forecasts for iron ore to $US50 a tonne for the rest of 2016, and $US45 in 2017, due to the positive momentum in China’s steel sector and the delays in ramp-up of new capacity.

“We believe that the tailwind from the recent iron ore rally, coupled with further cost cutting initiatives and a moderate capex program, have resulted in a better debt position and credit metrics than previously expected,” S&P said.

“That said, we believe that iron ore prices should remain subdued, as we don’t see any fundamental change in the industry supply and demand dynamics.”

The ratings agency’s prediction that iron ore’s surprising strength is set to continue for the rest of the year sets it slightly apart from many analysts, who continue to expect sharp falls from current levels. Buoyant prices, supported by China’s stimulus spending, meant that major miners’ recent profit results were not as dire as feared.

S&P also praised Rio Tinto’s liquidity as “exceptional”, given its recent debt payments and high amount of cash. Rio now has enough headroom to withstand potential volatility, S&P said, adding that the company’s new dividend policy should provide extra flexibility.

S&P said it could cut Rio’s ratings if the Chinese economy experienced a pronounced slowdown, and that it did not expect to upgrade the miner’s ratings given commodity prices’ sensitivity to China’s investment cycle.

In London trade, Rio Tinto shares dropped 4.7 per cent, while BHP Billiton fell 3.7 per cent as investors digested an independent report into the Samarco tailings dam collapse.