The iron ore price jumped more than 2% on Tuesday closing in on the $120 a tonne level seen as a benchmark for the health of the industry.
The benchmark import price of 62% iron ore fines at China's Tianjin port climbed $2.40 to trade at $119.40 a tonne according to data supplied by The Steelindex.
$120 a tonne has become something of a rule of thumb among iron ore producers – when prices stay below this level for long enough high cost mines, particularly those in China, become unprofitable leading to cuts in supply.
The price of iron ore is still off 24% from its 2013 high of $158 in February and despite the recent strength in the steelmaking raw material, most analysts still predict a steady decline in the price of iron ore towards the end of this year and into 2014.
A slowdown in China which consumes 65% of the 1.2 billion tonne a year seaborne trade and anticipation of vast new supplies primarily from the Big 3 producers – Vale SA (NYSE:VALE), Rio Tinto (LON:RIO) and BHP Billiton (LON: BHP) – hitting the market in the medium term are behind the negative outlook.
At least forecasts are now not nearly as dire as those made earlier in the year when consensus was for a price in the double digits or worse.
In its latest commodities outlook the Bureau of Resources and Energy Economics, the Australian government's official forecaster, predicts in 2013 the average contract price for FOB Australia iron ore is set to average $117 a tonne and drift lower to average $112 next year.
Australia's FOB export price usually trades at a discount of roughly $10 to China's CFR import price.