The commodity rebounded after a 10 percent drop just one day earlier, making it the largest single-day fall and rise ever in a 48-hour period. Mining giant BHP Billiton went up nearly three per cent, while its competition Rio Tinto saw a 2.32 per cent increase and Fortescue Metals rose 1.68 per cent.
This latest development will have a big impact on revenue for both Australia and China, as Australia is the world’s largest supplier of iron ore—which is key to making steel—while China is the Aussie’s top customer.
Meanwhile, Citigroup Inc. reduced its iron ore and coal predictions earlier this year, in a signal that other commodities are driving the energy industry.
This comes after BHP and Rio each had a low-cost output in 2014 that created a large supply of iron ore while growth in China slowed down considerably.
Now with reduced oil prices, shipping costs have lowered the rate of bunker fuel that reduces the cost of moving iron ore from Brazil and Australia to China. In the process, this will make the impact of lower iron ore prices on producers much easier to deal with.
Over the past year, the price of oil has fell by about 50 percent, with the largest cutback in spending from oil companies has been the fall in the amount of U.S. oil rigs.
However, the decrease in the price of oil is bad news for both iron ore and aluminum, as it lowers the level producers export out in an oversupplied market.
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Increased supply in recent months along with a decrease in Chinese demand has had iron ore on a steady decline. Even with the latest 10 percent spike, the majority of smaller Aussie miners will still be producing at a loss, forcing many cut costs.
Meanwhile, Rio Tinto believes the long-term market for iron ore is stable and will continue to produce a good amount of revenue in Australia. After providing its second-quarter operations review, Rio noted iron ore production and shipment increased compared to 2014 despite unseasonal, severe weather in Western Australia that included two tropical cyclones that lost about seven million tonnes.
However, the iron ore market needs to prove its stability moving forward in order to remain relevant among the world’s top commodities.