Iron ore
A labourer shovels iron ore into a steel ladle at Wuhan Iron and Steel Group in the capital of central China's Hubei province, October 17, 2007. Reuters/Stringer

Iron ore prices have witnessed a deviation from market expectations as the demand and prices of Chinese steel see new highs. Following three days of losses, iron ore spot markets returned to stable conditions on Friday.

Metal Bulletin notes that the spot price for benchmark 62 percent fines increased by 0.34 percent to reach US$90.37 (AU$117.95) a tonne. With this, the increase for the week stood at 4.3 percent. On Friday, the benchmark prices of iron ore stood over US$90 (AU$117.46).

Experts have warned to not get too excited as volatility has been witnessed in the spot market. Nevertheless, analysts have hinted at the possibility that demand for iron ore will remain strong – as Chinese steel prices have been recorded at four-year highs.

UBS analyst Lachlan Shaw said iron prices had fared at higher levels than what banks had forecast. “Even with record high (Chinese port) stocks, most other signals remain supportive in the short term and seasonally strong demand in the second quarter beckons,” Shaw said. He added that the company’s average forecast of US$56 (AU$73.09) a tonne for 2017 could further increase to US$66 (AU$86.14).

The May 2017 contract on the Dalian Commodities Exchange saw an increase of 0.35 percent, finishing at 701.5 yuan. The numbers for rebar, coke and coking coal were satisfactory, seeing increases of 1.1 percent, 0.65 percent, and 0.39 percent respectively.

The average price of iron ore at Australia ports fared at about US$64 (AU$83.53) a tonne before shipping. This price, which has been recorded since the start of 2016-17, was higher than the budget forecast of US$55 (AU$71.78) – seen as an optimistic forecast – delivered in May last year. Maintaining current levels of pricing can result in additional $3 billion of company tax revenue for the federal government in 2016-17.

BHP Billiton and Fortescue Metals Group will be reporting their earnings this week. The former is expected to report underlying first-half profit of $US3.4 billion (AU$4.4 billion) after the market closes on Tuesday.

Meanwhile, Fortescue, which will release its earnings on Wednesday, is expected to report $US1.22 billion (AU$1.59 billion) in underlying first-half profit – which will come as an increase from US$319 million (AU$41.6.34 million) a year earlier. “Fortescue is arguably the best-placed for a dividend surprise, having largely achieved its debt-reduction plans,” RBC analyst Paul Hissey said. He added he is expecting a full-year dividend of US25c (AU33c) per share.

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