Iron ore price remains steady above $US55
The iron ore price is holding above $US55, a level UBS says could boost Australia’s major miners if sustained.
The iron ore price is holding steady above the key $US55 a tonne threshold, a level which investment bank UBS says could offer a boost to Australia’s major miners if sustained.
Iron ore was unchanged at $US56.50 a tonne overnight, according to The Steel Index.
The commodity has been easing back from an August peak above $US60, but remains above several predictions for a slump into the $US40s, and its extended period of defiant strength has prompted some analysts to upgrade their near-term forecasts.
If current spot prices for iron ore and other commodities continued, BHP Billiton’s calendar 2016 earnings would be 10 per cent higher, while Rio Tinto’s would be 7 per cent higher, UBS analysts said.
Pure-play iron ore miner Fortescue Metals Group would get a 23 per cent upgrade to fiscal 2017 earnings if iron ore prices stayed this strong, according to UBS.
“The spot iron ore price is 14 per cent above our calendar year 2017 forecast,” UBS said in a research note.
“The rise in commodity prices in 2016 has been a welcome relief and very surprising given the outlook back at the start of the year.
“Strong mining sector performance in 2016 has resulted from declining cost, lower capex, higher prices due to supply restrictions and government stimulus.”
But the bank warned that commodity prices generally are stronger due to curtailed supply rather than increasing demand.
“With the sector up strongly, the upside to price targets has come down,” UBS said.
The bank cut its ratings on BHP and South32 to neutral from buy, and switched its preferred diversified miner from BHP to Rio, “with a view that a sustained iron ore price through year end could see additional returns in 2017”.
In London trade, BHP shares were steady, while Rio rose 1 per cent.
