Iron ore price leaps to 10-month high

The rally in the price of iron ore entered a new phase on Wednesday with the steelmaking raw material jumping to a 10-month high.

Northern China benchmark prices gained 4% to $64.30 per dry metric tonne (62% Fe CFR Tianjin port), the highest since mid-June according to data supplied by The Steel Index.

Iron ore is up 11.8% this week and the steelmaking raw material now boasts a near 50% rise year to date and an almost three-quarters surge from near-decade lows reached mid-December.

The latest leg up comes after world number two and three producers Rio Tinto (LON:RIO) and BHP Billiton (ASX:BHP) both lowered future production estimates.

Rio's global output showed double digit year-on-year gains in the first quarter of the year and said it remains on target to produced a record 350 million tonnes this year, but the Anglo-Australian giant did announce that its 2017 shipments would be lower by some 15 million tonnes.

Melbourne-based BHP today cut its production forecast for the financial year ending June 30 by 10 million tonnes to 229 million tonnes. Quarter on quarter production declined by 7% due to bad weather. Operations at the company's joint venture with Vale in Brazil, Samarco remains suspended following the failure of a tailings dam in November.

The miners themselves appear surprised by the rally in iron ore which even at a price much lower than today's provides the bulk of their earnings.

BHP's Andrew Mackenzie last month told the industry to "prepare for lower-for-longer" while Rio's outgoing CEO Sam Walsh recently told investors in London the rally isn't sustainable and that prices "may well soften in the second half."

Prices of premium export coking coal from Australia have also rallied hitting a year high of $95 a tonne on Wednesday. Coal used in steelmaking is showing 17.3% gains for the year and is up 29.5% from multi-year lows of $73.4 struck in November.

Iron ore price leaps to 10-month high