Iron ore prices tipped to head back above $US90 a tonne as supply concerns simmer

Iron ore prices have surged on hopes of stronger demand out of China and as the fallout from the Vale mine disaster rolls on.

The stockpiles of iron ore at the Tianjin port have fallen.

Iron ore prices surged overnight on hopes of improved demand out of China.

The spot price for Australia’s biggest export lifted 3 per cent to $US87.10 a tonne, firmly up from the circa $US75 a tonne mark it was trading at in January before the Vale mine disaster in Brazil. Prices have surged in the wake of the deadly mine accident amid concerns over supply.

“Falling steel stockpiles drove optimism that China’s steel production needs to lift further,” CommSec Market analyst Vivek Dhar said of the lift overnight.

“Demand was further supported after Chinese policymakers relaxed restrictions on sintering output in the steelmaking hub of Tangshan.”

The jump comes after prices for Australia’s biggest export spiked as high as $US94.20 a tonne in the wake of the Vale disaster, when a dam in Brazil owned by the world’s largest iron ore producer killed at least 186 people and triggered global supply concerns.

The price then dropped back slightly as higher prices crunched steel mill margins amid weaker demand, as a result of the slowing Chinese economy, as well as rising stockpiles.

Mr Dhar said this morning he expected the iron ore price to spike into the $US90s again in the near term, as supply concerns simmer.

But Chinese steel producer Hunan Valin Iron & Steel Group had a different take, noting higher prices weren’t sustainable given the global economic outlook.

Mr Dhar said the company believes that a supply response from Chinese and overseas mines would address any prolonged shortfall in seaborne supply.

Still, Australian iron ore exporters BHP, Rio Tinto and Fortescue have all said they aren’t able to boost output any higher in the near term, Mr Dhar said.

The price jump overnight came as base metals slumped on the back of slower-than-forecast industrial production out of China and a stronger US dollar.

China’s industrial output rose by 5.3 per cent in January and February, below the forecasts of 5.6 per cent.

“The increase in the first two months of 2019 is the slowest start to a year since 2009,” Mr Dhar said.

“However, seasonality might have exacerbated the weakness.”