Iron ore price optimism on China capital works program
Iron ore 62% Fe added 1.3 per cent to $126.80 per tonne as traders became more optimistic about last week's news that China may continue its development of railroad construction to absorb some overcapacity in the steel and cement industries.
Lower second quarter GDP growth of 7.5 per cent may also prompt policy-induced building material demand in the second half of 2013 and any possible cut in capacity due to environmental concerns will all support prices.
The iron ore price was the highest since May 14.
On an Australian dollar basis, the iron price is even better at $139 a tonne, providing a margin for low cost and medium cost producers and near term producers. It would also gladden the hearts of iron ore project developers and explorers.
On the supply side, the much mooted surfeit of iron ore in 2014-2016 to hit the market is not looking at certain as it was six months ago, with suggestions that Rio Tinto (ASX:RIO) might delay its mooted large increase in capacity in the Pilbara.
Most have been glued to the demand side from China, racheting down their forecasts due to weaker consumption, perhaps to the detriment at looking at the supply side.
However, evidence from producers like Rio Tinto (ASX:RIO), BHP Billiton (ASX:BHP), Arrium (ARI) is that they are selling all of the iron ore that they can produce.
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