Iron ore price in recovery

Iron ore prices are starting to take some pressure off miners, with the benchmark price of the commodity leaping 3.8 per cent on Thursday.

Steel Index figures show the import price for 62 per cent ore fines rose $4.10 to $111.50 per tonne, recovering from Monday’s 8 per cent price drop to $104.70.

Steel output in China rose 6 per cent a day to 2.08 million tonnes in late February, compared with the average of 2.07 million tonnes over the last year.

The new results have vindicated comments made by BHP Billiton iron ore president Jimmy Wilson on Tuesday, that despite price slumps of the past year demand for iron ore will continue to grow over the next decade.

"Our view that Chinese crude steel production is expected to peak at 1.1 billion tonnes, around 2025, is unchanged,” he said at the Australian Journal of Mining Conference in Perth last Tuesday.

“We remain confident that global demand for iron ore will continue to grow, though at a more moderate rate, driven by urbanisation and industrialisation.”

Market analysts have suggested that investment by iron ore miners in Australia and Brazil in expanding production for the Chinese market is now resulting in gaps between supply and demand, which will affect resource prices over the next two years.

Commentators have remarked that the price jump, while reassuring, has changed industry conditions of growing stockpiles and slumping demand.

Stockpiled iron ore in China is being used as collateral to secure loans, and as repayments for these loans are required, borrowers are forced to sell the commodity in a well-supplied market pushing prices down.

Rio Tinto iron ore chief executive Andrew Harding told the conference this credit squeeze is the main reason behind the recent drop in the price.

"The longer term is still intact. I can’t see any change to forecasts. I expect volatility on a regular basis, the longer term is still intact. I can’t see any change to forecasts,” he said.