Iron ore snaps winning streak

The iron ore price has dipped to $US54 a tonne, as fresh factory data out of China hinted at weak demand ahead.

Gina Rinehart's Roy Hill mine in the Pilbara ships its first iron ore. Supplied

The iron ore price has snapped a winning streak, edging further away from official estimates as fresh data showed slowing demand in the Chinese manufacturing sector.

Iron ore fell 0.4 per cent to $US54 in the most recent session, according to The Steel Index, from $US54.20 the previous day. Over the previous four sessions, the commodity had risen or held steady.

Despite a steady improvement over recent weeks, the key export has still been trading below the May budget’s estimate of an average price of $US55 a tonne over the following year.

A prolonged period of underperformance in the price could create a headache for the incoming government, with budget papers forecasting that every $US10 a tonne move in the iron ore price would affect tax receipts by $1.4 billion.

Late last week, an indicator of the health of Chinese factories showed activity growth was flat in June, although the figure printed in line with expectations.

The data suggests weak domestic demand and casts doubt over China’s forecast growth numbers, economists said.

With supply of the key steel-making commodity already outstripping Chinese demand, any fresh clouds over the health of China’s economy are a negative for Australian exporters.

In the most recent London session, Australia’s mining giants were mixed. BHP Billiton fell 0.3 per cent after a court in Brazil reinstated a civil suit over the Samarco dam collapse, while Rio Tinto rose 2.2 per cent.

On a brighter note, Macquarie is predicting the worst is over for diversified mining companies, tipping earnings to increase this year for the first time in the cycle.

The bank tips compound annual earnings growth of 11 per cent per annum over the next three years across the diversified miners it covers, saying the relatively low debt levels in the sector mean market equilibrium has been taking longer than normal to be restored.