iron ore rebound

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Iron ore rebound reignites expansion plans


Iron ore prices have bounced back after bottoming three months ago, reigniting many shelved expansion plans.

A once in a century mining boom has driven the Australian economy, sustained by China's huge appetite for resources such as iron ore.

However, iron ore prices dropped to a three-year low in September, below $US90 a tonne, amid speculation that the mining boom was over.

"I think it was a lot of concerns obviously with what was happening in the [United] States, concerns about the Chinese economy, concerns about more supply coming onto the market," said commodity analyst Jonathan Barratt, who runs Barratt's Bulletin.

"There was just an overall general amount of nervousness."

Now prices have surged back to $US145 a tonne as China's economy picks up.

The latest survey of the Chinese manufacturing industry by HSBC shows it is picking up, with the Purchasing Managers' Index coming in at 51.5 last month.

That indicates the industry is expanding modestly, and is the best result since May 2011.

Jonathan Barratt says the Chinese economy appears to have bottomed.

"We've had a changeover in government, and the new leaders of the Chinese Community Party have an expansionist view," he observed.

"China believes that it's got to expand in order to placate its people, and obviously by expanding it requires primary imports."

He says developments in India are also driving the iron ore price.

"We've actually seen 93 mines actually shut. The Supreme Court of India actually shut the mines due to the fact that they were contaminating ground water. Now that in itself has caused a supply restriction to the market, which has certainly helped the market," he observed.

"Now that was a bit of a surprise, so we will probably will see a little bit more lift in the price of iron ore."

Iron ore prices have jumped by around 25 per cent over December.

That has seen iron miners, including Fortescue Metals, kick-start mothballed operations, although miners are also keeping a close eye on rising costs.

Jonathan Barratt says he expects prices to stay high because big miners like Rio Tinto and BHP Billiton have shelved some expansion plans.

"We found it quite incredible that a lot of the big miners actually pulled back on their projects, where they actually shelved a lot of expansionary views, which in my mind was very short-sighted," he said.

"Because effectively what they're going to do is they're going to also cause a crimp in supply, because they're not going to meet market expectations and that should further sustain prices at these levels.

"So you're going to see the economies pick up. They're going to demand and they're not going to see the supply out there to meet that demand, so prices will continue to trade higher."

http://www.abc.net.au/news/2013-01-02/iron-ore-rebound-reignites-expansion