Iron ore shoots past $US90 a tonne to fresh 2.5-year high

Iron ore prices have leapt to a fresh 2.5-year high on strong Chinese demand, as analysts rush to upgrade forecasts.

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 price of iron ore has reached a fresh 2.5-year high on strong Chinese demand and speculative trading.

According to The Steel Index, the commodity’s value bounded 2.7 per cent to $US92.70 a tonne, up from $US90.30 the session prior.

It is the highest level reached since August 2014.

The key Australian export is now up around 15 per cent this year alone and has more than doubled from a 10-year low of around $US38 in February last year.

Several analysts have recently belatedly upgraded their 2017 forecasts for the commodity, with a swelling consensus that there is little catalyst for a sharp fall in the near-term.

“Even with record high (Chinese port) stocks, most other signals remain supportive in the short term and seasonally strong demand in the second quarter beckons,” UBS analyst Lachlan Shaw said.

Few expect prices to remain above $US70 next year, however, as output increases from the giants of the sector kick in.

The pricing development is a positive for several big local names, including BHP Billiton, Rio Tinto and Fortescue, with the latter tipped by Macquarie to surprise with a healthy payout to investors at its earnings release tomorrow.

“Fortescue Metals has been stepping up its dividend payout ratio in recent periods and we believe the interim dividend could be a positive surprise given gearing is now down to 30 per cent,” the investment bank said.

“After paying solid dividends in fiscal 2013, Fortescue materially reduced its cash return to shareholders in the subsequent 18 months but begun to step up the dividend in the second half of fiscal 2016.”

All eyes will turn to BHP first, however, as it reports half-year earnings after the market close today.