Iron ore may extend a bull-market rally should the world's biggest producers slow expansions further and even start to cut output from their higher-cost mines, according to Michael Zhu, former global sales director at Vale.
The raw material will probably increase to average $US60 to $US70 a metric tonne this year, Mr Zhu, president of Hong Kong-based trader Millennia Resources, said in a phone interview on Monday. So far this year, it's averaged $US59.83 after dropping to a low of $US47.08 on April 2.
Iron ore entered a bull market on Friday, rising more than 20 per cent from its closing low, after BHP Billiton said it would slow the pace of expansion in Australia by deferring port works and some smaller suppliers shuttered mines. A floor in prices may now be forming, according to Pacific Investment Management Co. A fourth day of gains on Monday would be the longest run this year.
The "market is mainly in the hands of the big four: if just one takes a little action, it has a big influence", said Mr Zhu, referring to Vale, BHP, Rio Tinto Group and Fortescue Metals Group. "If I were the miners, I'd say our responsibility is to satisfy the demand of the steel industry. I don't need to produce more, I don't want to produce less."
Ore with 62 per cent content at Qingdao rallied 5.5 per cent to $US57.81 a dry tonne on Friday, the highest level since March 16, according to Metal Bulletin. The commodity slumped 47 per cent last year and remains 70 per cent below its 2011 record as an expansion of low-cost supply spurred a global surplus and slowing growth in China, the biggest user, hurt demand.
While most supplies from the largest producers are low-cost, about 10 per cent to 20 per cent of their output does have higher costs, and such output should be cut, according to Mr Zhu. A price of about $US60 to $US70 is good for everybody, he said.
source: http://www.afr.com