The iron ore price has surged ahead, coming within sight of the $US60 a tonne level as Goldman Sachs upgraded its near-term forecasts following the commodity’s surprising strength in recent months.
Iron ore added 2.1 per cent to $US59.20 overnight, according to The Steel Index, from $US58 the previous day.
Goldman has lifted its three-month target to $US50 a tonne from $US45 a tonne previously, saying port stockpiles remain at historically low levels. The bank also lifted its six-month target to $US40, from $US35.
But Goldman still expects inventories to increase over the rest of the year and prices to fall to $US35 a tonne over the longer term. This is a more negative view than most other banks, the most bearish of which are tipping falls to around the $US40 level.
Goldman attributed much of the strength in iron ore prices over the second quarter of this year to the weakening US dollar. A lower greenback makes it cheaper for non-US buyers to buy commodities denominated in US dollars.
The bank now expects the US dollar to rise at a slower pace as the Federal Reserve increases rates more gradually than expected, and expects the more slowly appreciating currency will put less downward pressure on iron ore prices than earlier thought.
For late June and early July, Goldman singled out the US dollar/Chinese yuan exchange rate as a key driver of iron ore prices.
“Following the Brexit vote, Chinese yuan weakening triggered market expectations of further policy easing, which in turn drove iron ore prices higher,” analysts at Goldman wrote in a research note.
“We are of the view that the odds for the Chinese government to start a new round of credit stimulus are low at this point.”
In London trade, BHP Billiton fell 0.3 per cent, while Rio Tinto added 0.2 per cent.
Source:The Australian