Stable iron ore prices defy investor expectation

Iron ore investors are on edge as they prepare for iron ore prices to start dropping at this time of the year.

Iron ore prices dropped significantly last year during this period to $US86.70 ($94.10) per tonne. While investors have been expecting the same pattern this year, prices have remained stable in the third quarter.

Prices stood at $US133.10 ($144.45) per tonne last week, an upward trend since late June. This, coupled with the falling Australian dollar is putting mining companies at ease in Australia.

JPMorgan’s recent forecast of iron ore prices was also positive and said it would not tumble like last year, the SMH reported.

Fortescue Metals Group chief Nev Power said iron ore inventories at Chinese ports have been limited for many months, meaning purchasing has to go on to keep the steel mills going.

“We don’t see the same environment that created last year’s drop,” Power said at the Diggers n’ Dealers conference in Kalgoorlie.

“There were very high stocks in both the steel mills and the ports last year, and this year we are seeing below average port and mill stocks,” he said.

Brazilian iron ore miner Vale’s CEO Murilo Ferreira concurred, saying iron ore prices would not slide below $US100 per tonne.

“China has once more proved the pessimists wrong…our view related to China continues positive,” he said.

But UBS commodities analyst Tom Price disagreed saying inventory was no longer an accurate guide for iron ore prices as steel mills were more certain of iron ore delivery.

China’s steel manufacturing giant Ansteel recently warned Australian miners iron ore prices could fall as China’s steel makers are unable to break even

Infrastructure enhancements in China mean iron ore reaches mills faster. Also, iron ore is abundantly available as Fortescue, Rio Tinto and BHP Billiton have upped their export volumes.

BHP recently broke its iron ore production record for the 13th successive time, with an output rate of 217 million tonnes in the June quarter.

“Supply chains are maturing and, as a result, the anxiety about short-term supply is passing.

“That in turn tends to reduce price volatility and the urgency around restocking over a short period of time,” Price said.

“The fact is we’ve actually gone through most of this year with very low inventories.”

Price said iron ore prices could fall when steel mills cut back production at the end of the northern summer. He predicts it could slip to $US70 a tonne.

“The iron ore prices will weaken and we are still expecting a correction event around September or October on that basis,” he said.

A report from two European think tanks recently said stabilising global freight costs could end Rio Tinto and BHP Billiton’s hold over supply of iron ore to the Asian markets.

The two companies, along with Vale, have 65 per cent hold over the world’s seaborne iron ore market.

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