Iron Ore Australiahttps://theaustralian.com.au/business/mining-energy/iron-ore-price-surge-has-analysts-reassessing-expectations/news-story/114e22635c5cf669f824f56e08d3313f 3/6/2017 Iron ore price surge has analysts reassessing expectations https://www.theaustralian.com.au/business/miningenergy/ironorepricesurgehasanalystsreassessingexpectations/newsstory/114e22635c5cf669f824f56e08… 1/2 THE AUSTRALIAN Iron ore price surge has analysts reassessing expectations Iron ore’s surprising price strength is starting to convince some of the doubters, with analysts upgrading their expectations in another boost for the likes of Fortescue Metals Group, BHP Billiton and Rio Tinto. Andrew Forrest’s Fortescue was one of the bestperformed stocks on the ASX yesterday due in part to a decision by analysts at Credit Suisse to significantly increase their forecasts for iron ore. Credit Suisse analysts Paul McTaggart and Christian Prendiville lifted their prediction for Fortescue’s 2017 net profit by almost 30 per cent and their dividend expectations by 52 per cent after a major hike in their iron ore price modelling. It helped send Fortescue shares up 3.03 per cent, to close at $6.47. The spot price of iron ore has surged over the past year to more than $US90 a tonne, confounding expectations that it would bounce between a range of $US40 to $US60 a tonne. Credit Suisse now believes iron ore can stay above $US90 a tonne throughout the first half of this year, paving the way for share buybacks and increased dividends among Australia’s big iron ore producers. Fortescue is now expected to pay out US52c a share in dividends this year and another US32c next financial year under the Credit Suisse estimates, up from the bank’s earlier forecast of US34c and US15c a share. The bank noted that it was the strength in Chinese steel prices rather than iron ore’s own fundamentals that was driving the commodity’s shortterm price strength. “Soaring steel prices have opened wide cash margins for steel mills so they’re restocking with raw materials to run flat out,” the analysts said. “Construction season with peak steel demand is still to come so we don’t expect the steel price to give way yet.” While the bank expects the iron ore price to soften towards the end of the year, Fortescue is increasingly well positioned to absorb any correction. Fortescue has used the strong price of the past year to step up its debt repayments, leaving its balance sheet in a far stronger position should iron ore prices once again drop. Analysts at UBS have also upgraded their forecasts for the coming years, despite describing the current iron ore price as “unsustainable”. The bank upgraded its 2017 iron ore price forecast by 27 per cent to $US71 a tonne, as well as making minor 9 per cent and 5 per cent rises in 2018 and 2019. The strong share price rally in Fortescue yesterday, along with positive moves at BHP (up 1.6 per cent) and Rio Tinto (2 per cent), suggest investors put little stock in the commentary out of China’s National People’s Congress over the weekend that the country would reduce steel production by about 50 million tonnes a year. UBS noted the surprising strength in iron ore prices this year had been slow to encourage a restart of domestic Chinese iron ore mines, due to both the cost of doing so and scepticism about the sustainability of current prices