The iron ore price has held steady as Credit Suisse became the latest bank to caution that the commodity’s recent strength appears unsustainable.
Iron ore settled at $US59 a tonne overnight, according to The Steel Index, the same as in the previous session.
The steelmaking ingredient has slipped 4.5 per cent in the past two weeks, since reaching a three-and-a-half month high of $US61.80 a tonne.
Conversely, the commodity has now managed to hold above federal Budget estimates of $US55 a tonne for nearly two months straight, offering some cheer to Canberra given the sensitivity of national revenues to any weakness in prices of the key export.
Overnight, shares in Australia’s mining giants sank in London trade, which could point to a rough start for resources stocks at the Australian open. BHP Billiton dropped 4.9 per cent, while Rio Tinto fell 2.1 per cent.
Credit Suisse analysts struck a cautious tone in a research note on the outlook for iron ore producers this week.
“While current iron ore and coal prices present the opportunity for further earnings upgrades for some companies, the miners’ ongoing debt reduction focus evidenced in reporting season suggests they don’t believe current prices can persist,” Credit Suisse said.
“From the number of model requests we now get, it’s clear there is a high level of investor interest and a reluctance to take profit.
“While global money growth points to further commodity gains, we’d caution that (i) our China lead indicator is no longer rising and (ii) most of the commodity gains have been in iron ore and coal.”
Analysts at the investment bank also warned that a period of seasonal weakness for Chinese steel demand is ahead, following a boost to steel mill output on the back of stimulus measures this year.
Supply is expanding too fast for demand, leading to likely iron ore surpluses in 2017-18, Credit Suisse said.
“On a 12-month view, we still see downside to iron ore and coal prices.”
Source: The Australian'