Iron Ore Price Nears 3-Month High

3 August 2016

The iron ore price has pushed to a fresh near three-month high, ahead of Rio Tinto’s first-half earnings report.

Iron ore added 0.3 per cent to $US60.70 a tonne overnight, according to The Steel Index, after jumping to $US60.50 the previous day.

The price rise comes despite the news that Rio Tinto has approved plans to expand its Silvergrass iron ore mine, adding another 10 million tonnes of extra production capacity. Extra supply would usually be a dampener on prices.

The commodity is at its highest level since May 4, when it settled at $US61, in a rally that has surprised analysts calling for price declines given the oversupplied market. Several banks expect iron ore to fall to a level between the low $US40s and the low $US50s over the rest of this year and next.

Over the course of this year, the iron ore price has rallied some 41 per cent from its December 31 close of $US42.90, boosted by the Chinese government’s stimulus plans and seasonal restocking by Chinese steel mills.

The market has also been coming back into balance as some sources of higher-cost supply have been forced out.

The commodity’s strength — as well as being good news for the Federal Budget, which assumes a $US55 a tonne iron ore price and is sensitive to any prolonged period of weakness — could mean upcoming results from the major miners are not as poor as might have been feared.

Rio Tinto is scheduled to publish its earnings this afternoon, and analysts at Morgans say iron and coal prices are likely helping profitability at the bottom of the cycle, Bloomberg reported.

Even so, UBS analysts expect Rio’s underlying earnings from iron ore to have dropped 12 per cent, compared to this time last year.

In London trade, BHP Billiton lost 2.7 per cent, while Rio Tinto lost 1.8 per cent.


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