Iron ore sees another price rally

Iron ore has continued its winning streak for the sixth straight day.

At the end of last session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US53.80 a tonne, a 1.7 per cent rise.

The bounce comes after the commodity reached its lowest level since 2005 on April 2 of $US46.70 a tonne.

This means its price has jumped more than 15 per cent in just two weeks.

Helping the recovery was BHP Billtion's revelation this week that it would slow its ramp up to 290 million tonnes of iron ore production a year.

In its March quarterly report, the miner said it would defer a planned inner harbor debottlenecking project which would have increased production by 20 million tonnes a year by 2017.

Also improving sentiment is news that China, the world’s biggest importer of iron ore, has moved to stimulate its economy.

"The government wants to expand and accelerate investment in infrastructure and public goods so as to help stabilise growth, financed through policy bank lending, with the central bank providing liquidity and possibly even capital support," UBS analyst Wang Tao said.

Despite this, most analysts predict the price rise won’t last as BHP Billiton, Rio Tinto and Vale all revealed record iron ore production in their recent March quarterly reports.

“Some speculators who bet on falling iron ore prices were forced to cover their short positions on Dalian. That’s why we saw a rally,” an iron ore trader in Shanghai told Reuters.

“As soon as mills saw prices recovering, those with very low inventory had to come out and buy some cargoes. But I doubt whether this price increase will last because the overall supply of iron ore is still huge and the economic outlook is poor.

“I don’t think the long-term outlook has changed. We still expect a lot of supply coming through.”

For the last few years, Rio and BHP have defended their iron ore expansions by citing figures which suggest that China will be producing one billion tonnes of steel by 2030.

Not for the first time, the miners’ maths has been called into question, this time by Clinton Dines, the man who ran BHP's China business for 21 years until 2009.

He said the one billion tonne forecast had “taken on a life of its own”.

"Anyone with any nous would query it as a very nice round, convenient number. How could you ever forecast that?"

Li Xinchuang, deputy secretary-general of the China Iron and Steel Association recently said the country's steel production would not reach the one billion mark. 

Xinchuang said steel production in China would not grow beyond 900 million tonnes.

“It cannot (get to one billion), trust me, I have been in the business 30 years,” he said.

"We understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million.”

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