The iron ore price has slipped below the $US60 a tonne threshold, falling to its lowest point in a week as analysts continue to warn that the commodity’s surprising strength is unlikely to last.
Iron ore lost 1.8 per cent to $US59.60 a tonne overnight, according to The Steel Index, from $US60.70 the previous day. The commodity remains slightly below a three-month high of $US61.40 it reached earlier this week.
As Chinese growth slowed and the iron ore price tumbled into a bear market over the last two years, smaller miners slashed costs to stay afloat and even mothballed operations that had looked unsustainable.
But with the commodity bouncing off its late 2015 lows below $US40 a tonne to spend much of this year in the $US50s and $US60s range, some smaller players appear to have been incentivised to restart production, which could in turn be a negative for prices.
“Smaller, high-cost iron ore miners are back in the money and ramping up supply,” UBS analysts wrote in a research note.
“Chinese iron ore imports from ex-Top 5 producers have almost doubled from last year’s lows. And Chinese domestic supply growth is up almost 20 per cent.
“Our mining team believes the additional supply could cap iron ore price upside.”
Several analysts expect the steelmaking ingredient to fall to the low $US50s or $US40s over the rest of this year and next, with the most bearish longer-term forecast sitting at $US35 a tonne as demand fails to keep up with supply.
But the commodity has continued to defy predictions for some months, as traders hope planned Chinese stimulus will be able to support demand.
In London trade, Australian miner BHP Billiton rose 1.6 per cent, while Rio Tinto lost 0.5 per cent.
Source: The Australian