Intersting article, looks like FE is expected to...

Intersting article, looks like FE is expected to correct.

Concerns on demand for iron ore by: John Dagge From: Herald Sun January 21, 2013 9:00PM

IRON ore is overvalued and the spot price will continue to slide after easing over the past week, a new report says.
Morningstar is tipping the price of iron ore to fall to $US130 a tonne in the short term and flatten to $US90 a tonne by 2015 - a decline that will favour low-cost producers including Rio Tinto and BHP Billiton.

The forecast comes after the spot price surged by almost 70 per cent in four months before slipping in recent days.

Morningstar's report, which says Australia's two largest mining companies will maintain their cost advantages in iron ore production for at least another decade, comes after the shock departure last week of Rio chief Tom Albanese.

Rio's iron ore boss, Sam Walsh, was named chief executive of the group late on Thursday as it announced Mr Albanese had quit by "mutual agreement".

The iron ore spot price rose from a September low of $US87 a tonne to a 15-month high of $US158.50 a tonne earlier this month, according to The Steel Index.

It has since fallen to about $US145 a tonne amid concerns about Chinese demand. China consumes roughly two-thirds of all seaborne traded iron ore.

Morningstar basic materials senior analyst Mathew Hodge said much of the recent iron ore price strength had been driven by cyclical restocking among Chinese steel mills. A cold winter had also hampered domestic iron ore output in the world's second-largest economy, he said.

"The relationship between iron ore and Chinese steel suggests the iron ore price is ahead of itself," he said. "Prevailing Chinese steel prices have historically been associated with an iron ore price around $US120 to $US130 per tonne."

Mr Hodge said major iron ore producers' share prices had failed to rally in line with the spot price rise.

"This suggests the market is somewhat sceptical of the longevity of the recent bounce," he said.

Volatility in the iron ore price continues as major producers prepare to update the market with their quarterly figures from the three months to December.

BHP will update the market tomorrow while Fortescue Metals is scheduled to release its figures on Thursday.

Fortescue has relaunched an ambitious expansion strategy after an iron ore price surge following earlier shelving the strategy and cutting 1000 workers when the price dipped below $US90 a tonne.