Iron ore has lifted off a six-year low as investors continue to ponder an oversupply that mining giants Rio Tinto and BHP Billiton admit is far from over.
At the end of the latest offshore session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US58.50 a tonne, up 0.9 per cent from its previous close of $US58.00 a tonne.
The positive session breaks a run of six straight red sessions, but the commodity has still fallen for 10 of the last 12, giving up over 10 per cent during this period.
A minor price rebound marries with forecasts from most analysts that sit around the $US60 to $US65 a tonne mark through the full year, though expectations of a dip to $US50 are swelling.
"Chances are … there will be a fall in iron ore prices to around $US50 a tonne," Citi iron ore and steel trading head Mark Lyons said on Tuesday.
"To move up to $US60 to $US70 will require a turnaround in China's property market which will require cuts to interest rates.”
Mr Lyons' grim outlook follows comments from Sanford Bernstein analyst Paul Gait that iron ore could “test $US50 at the bottom” before likely recovering above $US70 a tonne.
Also altering price expectations in the past week is UBS, which now expects an average price of $US59 a tonne for this year, down $US7 on its previous guidance.
The minor price recovery comes on the back of closely-watched speeches from the iron ore bosses of mega-miners Rio Tinto and BHP Billiton in Perth on Tuesday.
Both firms defended their strategy of pumping more production into an oversupplied market, noting that the likes of Fortescue Metals Group and Vale had also lifted supply.
“If we don’t supply it, somebody else will,” Rio’s iron ore boss Andrew Harding said.
“The minute someone else supplies and I don’t, our shareholders miss out, our employees miss out, and if that supplier that chooses to fill that void is an international supplier, then the Australian and Western Australian people miss out because they don’t get the revenue-based royalties.”
Similar sentiments were echoed by BHP iron ore chief Jimmy Wilson, who added that, like Rio, his firms margins remained strong.
"The effectiveness of our approach is validated by our robust financial and operating results despite the challenging market conditions," he said.
"For the first half of this financial year, the team has delivered a solid underlying earnings before interest and tax margin of 49 per cent, and a return on assets of 34 per cent.”
Both mining giants said they expected volatility to persist in iron ore markets in the coming 12 months, but they remain bullish on long-term demand from China.
"We should never underestimate what is happening in China, and what continues to happen in China,” Mr Wilson said.
The optimism isn't shared by former Bureau of Resource and Energy Economics chief executive Quentin Grafton, who says there is a growing risk iron ore shipments have already reached their peak.
"Big mining companies talk about [volumes to China] peaking in the 2020s, and then plateauing, rather than falling off. That could be happening now," he told The Australian Financial Review.
"There are credible stories that the growth rate in China is less than the official rate, which would fit into the story of iron ore peaking this year or next year."
Locally-listed ore miners have been slammed in the past fortnight, with some of the heaviest falls seen during local trade on Tuesday as Fortescue Metals Group, BC Iron, Atlas Iron and Mt Gibson Iron all lost between 4 and 8 per cent, despite a rising market.
Meanwhile, Rio and BHP both lost about 1 per cent during local trade on Tuesday, but were on the end of much heavier selling in offshore trade. Despite the lift in the spot iron ore price, Rio’s London-listed stock lost 2.8 per cent, while BHP’s slumped 4.7 per cent as the broader FTSE 100 gave up 2.5 per cent.
Source: The Australian