Iron ore has leapt above $US50 per tonne in a two-day rally that may provide a glimmer of hope for embattled Australian miners.
However, the outlook is still resoundingly gloomy with forecasts from the last week predicting the commodity still has further to fall.
Iron ore delivered to the port of Qingdao jumped $US1.96 to $US50.78 on Tuesday, rallying for the second day. In the past week, the commodity had traded as low as $US47.08.
The sharp fall in the price of iron ore this year, led by efforts from major miners including BHP Billiton and Rio Tinto to pump up production and concerns over China's economic health, has led to dire predictions of continuing steep declines.
On Monday, Treasurer Joe Hockey plunged into the fray, telling The Australian Financial Review that he is "contemplating" a price as low as $US35 a tonne.
On the same day, Citigroup seconded the Treasurer's notion, saying that iron ore will fall as low as $US36 a tonne in the third quarter and that it will then stay below $US40 for the remainder of the year.
If levels in the mid $US30 range are reached, that could place pressure on BHP Billiton and Rio Tinto to cut capital expenditure to protect dividends.
S&P, meanwhile, this week placed BHP, Rio and Fortescue Metals Group on negative watch as it too cut iron ore price forecasts.
The ratings agency now tips a a 2015 price of $US45 a tonne, down from $US65, and a 2016 price of $US50, down from $US65. Gazing deeper into its crystal ball, S&P says iron ore will trade around $USS55 in 2017, down from a previous forecast of $US70.
The grim outlook has led to fears over the future of junior miners, with Atlas Iron already falling foul of the year's steep price falls.
Concerns are also mounting over the impact of the commodity's decline on the budget bottom line, with Prime Minister Tony Abbott expected to attempt to calm fears in a pre-budget speech on Wednesday.
Source: Sydney Morning Herald
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