Iron ore has rallied overnight to close to US$60 per tonne off China’s ongoing plans to cut capacity and uncertainty over China’s south sea claims.
The metal rose close to seven per cent to US$59.83 per tonne overnight, according to the latest data from The Metal Bulletin.
This was driven by the Chinese Government forcing its provincial governments to set capacity reduction targets this week for iron ore and coal.
News out of The Hague demolishing China’s legal claim over much of the South China Sea, also added to geopolitical risk and market uncertainty.
This price rise comes only days after the Australian Government revised its initial 2016 budget forecasts for iron ore, dropping them by a fifth as market volatility continues.
The Federal Department of Industry, Innovation, and Science’s latest Resources & Energy Quarterly report has dramatically slashed the Treasury’s initial predictions.
It predicts a price point of US$44.80 per tonne, down nearly 20 per cent from earlier Treasury forecasts.
The Department also predicted a similar price point for the rest of this year, at around US$44.20 per tonne, down from its earlier estimates of US$45.
“The revision is based on the assumption that loss-making operations may continue to produce for longer than previously expected,” the Department of Industry, Innovation and Science report said.
“It also factors in increased supply from India and additional cost savings reported by iron ore producers.
“Despite the large movements in prices, the market fundamentals are broadly unchanged — demand growth is slow and the market remains well-supplied.”
In terms of 2017 iron ore movements, the report stated “prices are expected to recover more slowly than previously forecast”.