Will Australian iron ore producers get some relief next year after prices halved in 2014?
Analysts believe that for now the steel-making ingredient is unlikely to move much from its current level.
The iron ore price gained two per cent overnight to trade at $US68 per tonne, but extra output from the big miners and slowing Chinese growth continue to weigh on Australia’s biggest export.
The nation’s biggest iron ore producers BHP Billiton, Rio Tinto and Fortescue Metals Group have taken the falls in their stride.
However, big questions remain over the future of smaller, high cost outfits such Atlas Iron, Arrium and Mount Gibson Iron which are struggling to break even.
Investors are likely to get a clearer picture when companies report their earnings in February.
CMC market analyst Michael McCarthy believes iron ore prices are close to the bottom as supply-side responses take hold in the first quarter of 2015.
“I would expect at least stabilisation around these lower levels and eventually over the first quarter move back towards $US80 per tonne as those supply-side responses start to kick in,” Mr McCarthy said.
However, he said some small to mid-tier producers would still struggle at those prices.
“There’ll be some tough decisions to be made in the iron ore landscape in Australia over the next half year and although demand is robust it’s the supply side that’s the issue.”
BHP and Rio were indifferent to lower prices and could see long term advantages, he said.
IG Market analyst Stan Shamu said stimulus measures in China would be the best hope of a near-term bounce in iron ore prices.
“As we head towards Chinese New Year we’ll probably continue to see prices remain fairly benign and then we’ll need to look at what happens with global growth and what happens with China’s growth,” he said.
He expects some stability around the $US70 range in the near term as Chinese mills stock up ahead of Chinese New Year.
But he predicts the Australian iron ore sector will experience consolidation next year as smaller players close mines and struggle to break even.