Producers rally on soaring iron ore price

The benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin added $1.20 or 1.9% to $65.10 a tonne according to data provided by The SteelIndex, the highest since January 23. High grade 65% Fe fines at the port of Qingdao were also up sharply rising to $74.10 a tonne, a 1.6% improvement.

Benchmark prices have now recovered more than 39% since hitting record lows at the beginning of April after entering 2015 just above the $70 a tonne level. The iron ore price peaked above $190 a tonne in February 2011.

The latest gains came after positive comments from Vale Chief Executive Officer Murilo Ferreira at a conference in the Brazilian giant’s home base of Rio de Janeiro about the supply outlook:

According to Bloomberg Ferreira said imports by China, which already consumes more than 70% of the seaborne trade, will increase as domestic capacity of around 200 million tonnes are forced out of the market:

“Several Chinese producers – a higher number than people realize – have already left the business. I think we will have a better second half in China than the first half in terms of steel.”

Ferreira expects the seaborne market to grow 3.6% to 1.44 billion tonnes this year.

The Brazilian giant also announced it’s making deep cuts to capital expenditure, slashing investment in new projects by $5 billion this year compared to 2014. By 2018, Vale would only allocate $4 billion for investment spending versus $14 billion last year.

Last month number three producer BHP Billiton said it’s putting on hold expansion at its export terminal in West Australia.

Led by Vale (NYSE:VALE) with a 6.2% advance shares in the big three producers showed strong gains in New York trade on Wednesday adding billions to their combined market value of some $250 billion.

American depository receipts of Anglo-Australian giants BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) added to gains in London jumping more than 3.4% and 3.8% respectively.

Earlier number four producer Fortescue Metals Group (ASX:FMG) missed out on the rally dropping 2.5% in value on the Sydney Stock Exchange while shares in Anglo American (LON:AAL) ADRs in New York added more than 4%.

SEE ALSO: Iron ore is not in oversupply

Blame oversupply of fines for the slump in the price says new report. Global pellet, lump and concentrate production have been stable since 2010.