The price of iron ore has surged in its first day of trade since the world’s leading iron ore producer, Vale, signalled it would be prepared to trim its future supply by as much as 30 million tonnes per annum.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US57.80 a tonne, up 2.8 per cent from its prior close of $US56.20 a tonne.
The positive session ended a two-day losing streak that came on the back of a speedy recovery from last month’s 10-year low of $US46.70 a tonne.
Driving the latest bounce was fresh signs of cutbacks to expected future supplies as Vale last week declared it would mothball 30 million tonnes of high-cost production should the price of the commodity remain weak.
“We can now optimise our operations,” Peter Poppinga, head of Vale’s ferrous division, said of the group’s expansion. “That makes it possible to paralyse some higher-cost, lower-quality production flows in these systems, obviously depending on market conditions and consistently pursuing our objective of margin optimisation.”
The Vale comments came after BHP Billiton suggested it would defer 20 million tonnes of its planned expansion, with Rio Tinto now the lone member of the “big three” yet to hint at cuts to future production plans.
Signs of supply being trimmed were seen in data released on the Port Hedland export hub yesterday, with a 3.4 per cent drop in exports in April as troubled Atlas Iron curbed production.
Atlas uses Port Hedland alongside the likes of BHP and Fortescue Metals.
Meanwhile, ratings agency Standard & Poor’s put BHP on ratings watch for a downgrade on Monday despite the recent improvement in the commodity’s price, switching its outlook to “negative” from “stable”.
“The outlook revision reflects our concerns that continued weakness in commodity prices, combined with BHP Billiton’s commitment to a progressive dividend payment, may weaken the company’s key financial metrics to below our expectations for the A+ rating without offsetting measures by the company,” S & P credit analyst May Zhong said.
Source: Business Spectator
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