Iron ore price up 0.2% to $56/tonne, could further improve to $58 in H2 2017

The price of iron ore rose above US$55 (A$72.55) per tonne on Friday, up 0.2 percent to US$56.60 (A$74.64) from the previous day’s US$56.50 (A$74.50), according to The Steel Index. However, Citi cut its rating on BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) after it warned of a looming downside on the commodity.

With Citi recommending “sell” for shares of the two giant miners, BHP shareprices slumped 4.4 percent and Rio 4.9 percent in London trade, The Australian reports. Citi warns of further drops in shareprices in Friday’s trade.

Despite the surprising strength of the key-steelmaking ingredient, UBS told traders not to be complacent in their outlook for the commodity. UBS analysts believe prospects for iron ore could be worse than crude oil over the next 12 to 24 months as global glut takes place and producers are hesitant to invest in new capital venture.

In a research note, the UBS analysts writes that the iron ore market has the support of seemingly better supply side discipline. However, China has successfully restimulated the heavy side of its economy for the demand side of the commodity. The analysts predict iron ore prices could hold US$50 (A$65.96) into the yearend which is a contrary view from Citi’s.

But a top Bloomberg forecaster predicts an average price of US$55 for iron ore inQ4 which would last until H1 2017. In the last two quarters of 2017, the price would edge up to US$58 (A$76.51).

Bart Melek, head of commodity strategy at Bloomberg, explains the higher forecast to low-cost producers ramping up a bit. He adds, “This is probably why we’re not going to see a big rise in prices anytime soon. There’s a considerable amount of base production at very competitive prices coming up,” Sydney Morning Herald quotes.