Iron ore’s price spikes 10pc in five days
The price of Australia’s biggest export has surged 10.3pc in five days, boosting miners and adding to Treasury’s coffers.
The price of iron ore, Australia’s biggest export, has surged 10.3 per cent in the last five days, delivering a short-term boost to big miners and adding to Treasury’s coffers.
According to IODEX, iron ore’s spot price rose nearly 4 per cent last night to $US93 a tonne, capping days of gains.
The rises come on the back of ongoing supply concerns, with Cyclone Veronica set to dent BHP and Rio Tinto production in Western Australia, as well as disruptions to Brazil giant Vale in the wake of a mining dam collapse in January.
Iron ore prices shot up from around $US75 a tonne before the Vale mine disaster, which prompted the suspension of operations at a number of the iron ore giant’s mines.
Commonwealth Bank commodities analyst Vivek Dhar said those events combined have resulted in between 4.5 per cent to 6 per cent of the world’s seaborne iron ore supply being sidelined.
“All together, that is forcing price actions higher as the disruptions have come back to back in a market that hasn’t been ready for that level of disruption that quickly,” Mr Dhar told The Australian.
Shares in Rio have lifted 3.5 per cent in the last five days while BHP shares are up 3.2 per cent.
The price hikes came as Tuesday’s federal budget revealed that strong iron ore prices had vastly outperformed Treasury’s expectations, and delivered a multibillion-dollar boost to taxpayers.
Mr Dhar said in the short term, prices would track above $US90 a tonne. However the higher prices would ultimately be unsustainable due to tighter steel margins in China.
“Once supply responds, our expectation is that China will respond with additional supply domestically, and Chinese demand has some time to reduce their demand or potentially move to scrap steel, we think that the levelling point for iron ore would be at about $US85 a tonne,” Mr Dhar said.
“While steel margins have improved a little bit this year, they can’t take iron ore prices spiking even higher, to say $US100 a tonne,” Mr Dhar said.
“If it does, we’ll see a lot of push back from the Chinese side because they can’t afford to pay that much.”
Adding to the price action is an increase in China’s iron ore port stocks, which had increased since February, but last week marked the first stockpile decrease in nearly two months.
“China’s port stocks are an important indicator of surplus and deficit concerns in iron ore markets,” Mr Dhar said.
“That is mostly due to China’s enormous influence on seaborne markets, where they account for about 70 per cent of the world’s seaborne imports.”
