Price of iron ore on the rise again

The price of iron ore has gained three per cent since two of the world’s biggest miners announced plans to slow-down production.

Benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US57.80 a tonne, up 2.8 per cent.

The gain makes up for some of the lost ground of last week, when iron ore plunged 4 per cent following a two-week price rally.

However the commodity is still down by 40 per cent on this time last year when it was trading at $US100 a tonne.

The price glut seen in the last 12 months has been widely blamed on a wave of new supply being produced by the big three iron ore miners BHP Billiton, Vale and Rio Tinto.

With multi-billion expansions producing record tonnages of ore, there has been more of the steel-making ingredient in the seaborne market than it is able to handle, sending prices south.

But in a sign the pause button may have been finally pushed on adding more volume were announcements last week from BHP and Vale.

BHP has decided to defer growth in the Pilbara by not undertaking an inner harbour debottlenecking program at Port Hedland.

This will limit around 20 million tonnes of iron ore from hitting the market.

Meanwhile, Brazilian miner Vale said it would cut out around 30 million tonnes of high-cost supply.

“We can now optimise our operations,” said Peter Poppinga, head of Vale’s ferrous division.

“That makes it possible to paralyse some higher-cost, lower-quality production flows in these systems, obviously depending on market conditions and consistently pursuing our objective of margin optimisation.”

This means Rio is the last of the three majors to remain unmoved by the iron ore price fall.

Speaking in Seoul last week, Rio CEO Sam Walsh said despite iron ore’s falling price, growth out of Asia was still strong and supported Rio’s ramp up plans.

“Iron ore will remain the backbone of Asia’s infrastructure needs and in copper the world will need another four to five million tonnes of new supply by 2025,” Walsh said.

Rio has always argued that it is in the best interest of its shareholders and stakeholders that it continues to place high quality tonnages into the market.

The company says limiting production would just force other mining houses to fill the void meaning Australia would lose out on taxes and royalties.

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