Iron ore slips below US$60

Iron ore’s rally appears to be receding, as the metal slides below US$60 per tonne.

Yesterday, the Northern China benchmark iron ore price dropped to US$59.50 per tonne, after speculation drove the metal to 16 month highs over the last few weeks to the point it reached just above US$70 per tonne.

Following the recent spike iron ore majors such as Rio Tinto and Fortescue have used the strengthened price point to reduce billions in gross debt by buying back notes.

This rise in iron ore, coupled with the rallying gold price, has seen some in the industry predicting that the downturn’s trough has been reached.

“I believe with what we’ve witnessed early in 2016 will be the trough for the commodity markets,” Vedanta chief, and former Rio Tinto CEO, Tom Albanese said in a recent earnings conference call,

“Commodity prices have improved materially in the last couple of months, and investor sentiment has started to turn cautiously positive on the resources sector.”

Capital Economics analyst Simona Gambarini added that “all the precious metals are up quite strongly on the back of weakness in the dollar, after poor GDP data in the United States and a lack of action by the Bank of Japan”.

Even the Australian government is forecasting a stronger mining industry, using higher than the current average price points to build the latest Federal Budget.

It has forecast a spot price of US$55 per tonne for iron ore, a rise from previous estimates of US$39 per tonne; US$91 per tonne for coking coal compared to US$73 per tonne in the last budget; and US$52 per tonne for thermal coal, which remains unchanged from previous budget estimates.

However increasing iron ore stockpiles in China, and the end of an overly speculative market may drive the metal down further from its current position of just below US$60 per tonne.

“The wildcard in relation to iron ore at the moment is the Dalian metal futures exchange, where there are huge quantities of iron ore being traded,” current Rio Tinto CEO Sam Walsh said at the company’s annual meeting yesterday.

“I know the Chinese government is working to put greater controls on that exchange, because the volumes at the moment are excessive.”

Additional supply from Roy Hill as well as Fortescue’s recent iron ore blending agreement will see increased tonnages hit the market, which are likely to further drive down price later this year.

 

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