ANZ said while the outlook for iron ore remained subdued, the floor price appears to have been reached at $US47 per tonne in early April when BHP Billiton and Vale announced plans to slow or reduce supply.
 
“We think bulk producers can breathe a sigh of relief as the perfect storm in market conditions passes,” ANZ said.
 
“The 30% relief rally in iron ore in the past four weeks appears to have snuffed out the 65% price plunge inflicted over the previous 14 months.”
 
The Metal Bulletin 62% fines price reached $61.40/t on Friday, its highest point since early March.
 
Investec last week warned that the rally was an “over-exuberant response to chair shuffling” and warned that prices would resume the downwards trend, averaging at $52/t this year.
 
ANZ warned that fundamentals remained weak and downgraded its iron ore price forecasts.
 
This year, iron ore is expected to average $56/t, down from $57/t.
 
“As a result we are downgrading 2016 and 2017 iron ore price forecasts by 8.0% and 5.0%. We expect prices to trade range-bound between $US50-60/tonne over the next 12 months.
 
“We believe iron ore prices in the $50-60/t range will be the pain-point range for high cost global supply to shut down and help rebalance an oversupplied market,” ANZ said.
 
“Supply cutbacks by high cost producers are occurring and will continue as losses mount.”
 
ANZ estimates 45 million tonnes of seaborne supply was shut down in the December quarter, and around 30Mt will come out of the Chinese domestic market this year.
 
Rio Tinto CEO Sam Walsh said last week that the company was expecting 85Mt to exit the market this year, with a further 80Mt at risk.
 
“As at the end of the first quarter, 22 million tonnes have actually left the market, so if you multiply it out, we’re within cooee of what we’d indicated,” he told reporters in Perth on Thursday.
 
Based on an expected prolonged period of weakness in the Chinese steel market, ANZ has made material cuts to iron ore prices in 2016 and 2017.
 
ANZ has cut its 2016 forecast by 8% to $55/t and its 2017 outlook by 5% to $60/t.
 
Meanwhile, UBS warned of a protracted surplus in iron ore and said further rationalisation was required.
 
The bank calculated what iron ore price the market is currently factoring in for each producer, which suggested an average of $51.50/t.
 
The highest implied price is Fortescue Metals Group at $54.91/t, based on a $A2.58 share price, while the lowest was BHP at $US47.45/t, based on a share price of $A31.80/t.