Gina Rinehart's Hancock Prospecting believes iron ore will recover to $US80

Gina Rinehart Photo: Getty Images/ Matt King.

Amidst projections that the iron ore price will collapse to $40 a tonne or lower, there is one group predicting a different, far more bullish outlook for the metal: Gina Rinehart’s Hancock Prospecting.

According to a report in Fairfax Media today Hancock Prospecting executive director Tad Watroba said the long-term fundamentals for the iron ore industry remained solid despite the price falling to a six-year low of $US44 a tonne in early July.

“It will go back to $US80 a tonne in my view. You’re seeing some price volatility at the moment but some of that high-cost supply will come off and in terms of China demand still remains strong”, said Watroba.

It’s certainly appears to be an optimistic forecast, particularly given supply and demand fundamentals in the global steel market at present. Last week the World Steel Association released its June crude steel production report with volumes declining to 136 million tonnes, a drop of 2.4% compared to a year earlier.

On the other side of the ledger, despite falling steel production, the largest iron ore miners continue to ramp up supply despite the sharp decline in the spot iron ore price. Rio Tinto expects to supply 340 million tonnes of ore this year with BHP Billiton forecasting an increase in production to 270 million tonnes.

Even mid-tier iron ore miner Fortescue Metals Group is ramping up production, revealing last week that it had shipped 165 million tonnes of ore in the year to June, an increase of 33% on the prior 12 month period.

Once Roy Hill comes online, the mine which is 70% owned by Rinehart’s Hancock Prospecting is expected to add an additional 55 million tonnes of supply per annum according to the Fairfax report.

Like many of the bullish iron ore forecasts seen at present, the premise that the spot price will once again move higher is based on the view that higher-cost suppliers will eventually be forced to cease production, seeing the oversupply currently seen in the market move back to equilibrium.

Whether that will happen remains uncertain, especially given some higher cost miners have recently brought iron ore production back online following a small rally in the spot price and measure to reduce overall production costs.

On Friday the spot price for 62% iron ore fines fell 30c to $51.42 a tonne. Year-to-date the price has fallen approximately 27.8%.

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