COLUMN-Iron ore reality check shows small, but significant change – by Clyde Russell (Reuters U.K. – May 4, 2015)

LAUNCESTON, Australia, May 4 (Reuters) – It’s time for a reality check all round in the iron ore market.

In recent weeks there has been a strong rally in prices, tentative signs that the headlong expansion of capacity will be reined in, calls for a producer cartel of some sorts and a small miner scrappily hanging on in the face of seemingly overwhelming adversity.

All of this makes for great drama and news headlines, but also should lead to questions and analysis as to whether anything has actually changed in the iron ore market.

The first reality check is that despite the near 27 percent rally in the spot Asian iron ore price between April 6 and April 27, the price remains extremely weak.

Iron ore ended last week at $56.20 a tonne, having retreated from the $59.20 reached on April 27, leaving the steel-making ingredient down 21 percent so far this year. It’s also roughly half of what it was this time last year and not much better than a quarter of the record $191.90 a tonne in February 2011.

The price is also still well below the median estimate of $68 a tonne forecast for 2015 by analysts polled by Reuters in January.

What this shows is that even a strong rally in prices hasn’t really been enough to lift iron ore out of the doldrums.

The main message from April’s gains is that a price floor may have been found, at least for now.

Whether prices can continue to rise will depend on how much new supply hits an already saturated market.
This brings us to the second reality check, namely that the big miners are finally starting to show supply discipline.

BHP Billiton (NYSE: BBL – news) was first cab off the rank, slipping into its latest quarterly output report a couple of lines to the effect that it was deferring expanding its output to 290 million tonnes.

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