Iron ore’s rally set to prompt more supply: analysts
The iron ore price has hit another new six-month high, as analysts warn formerly uneconomic mines may reopen.
The iron ore price has hit another new six-month high even as analysts warn that the four-week rally could provide an incentive for more supply, particularly from producers outside the biggest miners.
Iron ore added 0.3 per cent to $US64.70 in the most recent session, according to The Steel Index, from $US64.50 the previous day.
The fresh increase extends the rally to a string of 20 sessions with only one decline, as it edges closer to its April 29 peak of $US65.20.
Iron ore has rallied along with the price of coking coal, another key steelmaking ingredient, while speculation is also thought to be exacerbating gains.
Macquarie analysts warned that the surge could encourage marginal producers to restart mines that were uneconomic at lower prices.
“The longer prices stay above $US60 a tonne, the more supply we expect to see coming into the market within a short time frame, especially from India and Chinese domestic mines,” Macquarie said in a research note.
“Iron ore imports from Australia (to China) in September were 60.4 million tonnes, up 8.4 per cent year on year, and a record high.
“Arrivals from India have yet to pick up post monsoon season, at less than one million tonnes in September, but we expect to see them lift strongly in coming months.
“Chinese domestic iron ore supply is also strong in response to the price recovery.”
But costs have also been increasing, and steel output in China will likely decline seasonally over the November to February winter, Macquarie said.
The bank reaffirmed its forecast that iron ore prices will fall back towards the $US50 a tonne level, which it says is sustainable on a fundamental basis through 2017.
In London trade, BHP Billiton shares fell 1.8 per cent, while Rio Tinto lost 2.2 per cent.