Iron ore juniors get breathing space
Iron ore's unexpectedly strong price rally has given valuable breathing space to the State's mid-tier producers.
The steel-making ingredient added another 5.5 per cent to $US57.81 a tonne late on Friday to take its gain since bottoming at $US47.08 on April 2 to 23 per cent.
It remains well off its August 2013 high of $US144.18/t, but the rally has spurred hopes of a change in sentiment while providing relief to producers slashing costs to stay profitable at sub-$US50/t prices.
"If the recent rally is a portend for the future, as we think it may be . . . then Australia's higher-cost iron ore producers are on a more stable footing," HSBC said.
BC Iron reduced its all-in production costs to $US52 a wet metric tonne last month, while Fortescue Metals has has cut its break-even to $US39/t.
Shaw Stockbroking estimated on Friday that with prices at $US55/t, Fortescue would generate $US2.5 billion of free cash flow in the 2015-16 financial year.
The price run came too late for Atlas Iron, but it will provide an incentive to the company's talks with contractors about a deal to stave off the appointment of receivers by US creditors.
Atlas, which needed an in ore price of $US60/t to keep its head above water, is mothballing its WA mines under a staggered plan announced on April 10.
The price jump has been fuelled by the closure of higher-cost production in China and elsewhere, but BHP Billiton's move to defer its Port Hedland expansion and Fortescue Metals' deft refinancing have also played their part in boosting sentiment.
HSBC says it has taken heart from China's move last week to loosen monetary policy.
"For Australia, an important part of China's policy stimulus program is the focus on infrastructure investment," it said. "Infrastructure investment is steel-intensive and thus supports demand for iron ore. But demand is not the only story for the iron ore market. There are also some signs that growth in iron ore supply, which has been strong, has started to slow down."
