News

Iron ore price steels itself above $US55 a tonne

Issued at 2016-07-27



The iron ore price has edged higher, defying yet another forecast for the commodity to come under pressure in the near term.

Iron ore inched up 0.2 per cent to $US55.80 overnight, according to The Steel Index, from $US55.70 the previous day.

But the key export faces a range of headwinds, including a property correction in China, UBS analysts warned in a research note.

Property investment in China is set for slower growth over the next year, as current momentum has mostly been fuelled by government stimulus since the second half of 2015, UBS said.

“A material amount of construction activity has likely been front-loaded from 2017 into 2016, fuelled by credit growth,” analysts led by Andreas Bokkenheuser wrote.

“Steel and iron ore support this year thus leaves demand downside in 2017-18. And now with supply on the rise, prices should come under renewed pressure.”

UBS also warned that iron ore inventories at Chinese ports reached an 18-month high of 108 million tonnes last week.

“The increase suggests that seasonal supply growth from Australia and Brazil is not being absorbed by demand,” the bank said, adding that inventories are rising despite demand support from Chinese credit growth.

“We suspect once it hits its historical 115 million tonne peak, restocking will significantly slow.

“In this scenario, sellers will likely need to bypass inventories and sell directly into a steel market with negative demand growth.”

The warning follows a string of gloomy forecasts from other investment banks, tipping the commodity’s price to fall into the low $US50s or low $US40s this year or next as supply outpaces demand. But the export has remained surprisingly resilient due to a mix of Chinese steel mill restocking, government stimulus and speculation.

In London trade, BHP Billiton shares fell 0.4 per cent, while Rio Tinto fell 0.5 per cent.


Source: The Australian



Related News