Iron Ore Price On The Rise Again

price increase (2)Iron ore has finally started to pick up after what seemed like an endless stretch of bad news.

While it seemed that the industry's biggest producers had no intention of slowing down their production in what many have billed as an attempt to muscle out smaller companies, they are finally starting to let up a little and it's already beginning to show in the price.

On Tuesday, benchmark iron ore for immediate delivery to the port of Tianjin was trading at US$57.80 a tonne, up 2.8 per cent from its prior close of US$56.20 per tonne.

The iron price first saw a boost in late April after BHP Billiton (ASX: BHP,NYSE:BHP,LSE:BLT) decided to slow down expansion plans at its Inner Harbour Debottlenecking project. That was then halted last Thursday, as a two-day tumble saw the space get a much-needed reality check.

However, April still saw a 9.5 percent increase for the iron price. And now that Vale (NYSE:VALE), the world's biggest iron producer, has followed suit by reducing its forecasted iron production by up to 30 million tonnes over the next two years, the supply-demand scale may balance itself out once again.

Rising demand from China

Price gains seen on Tuesday have mainly been attributed to an increase in China's demand for high-grade cargoes. In turn, that demand has reduced stockpiles of the raw material at Chinese ports to the lowest level since February.

The increase in demand from China is in line with predictions from Australia & New Zealand Banking Group, who told Bloomberg last week that, "[m]arket participants are expecting prices to continue to rise in the coming days."

Morgan Stanley was on the same page, noting in a report last week that the rally was likely driven by mills in China restocking and said prices will likely peak mid-year, although the firm's overall price forecast remained unchanged.