Australia keeps $60/t iron ore f'cst despite price jump

By James Regan

SYDNEY, April 28 (Reuters) - Australia on Tuesday downplayed the chances of a strong recovery in iron ore prices, sticking with an earlier forecast of $60 for 2015 despite a 25 percent recovery in the market price this month.

Shares (Berlin: DI6.BE - news) of smaller iron ore miners have surged in recent weeks after the spot iron ore price rebounded from more than 10-years lows, although analysts are doubtful the higher prices can be sustained.

"We are happy to stick by $60 a tonne in the near term for an average price, " Mark Cully, chief economist for Australia's commodities forecaster, the Department of Industry and Science said. So far this year the price has averaged $63 a tonne.

Iron ore prices rose from $46.70 at the start of April to $58.70, partly reversing a steep fall, but Cully said recent movements more reflected speculative trading rather than market fundamentals.

The department has forecast an increase in iron ore supply and weak steel production growth in China will drive prices lower in 2015 and into 2016. Its current price estimate is down from $94 a tonne just four months ago.

Analysts and some mining executives blame mega miners Vale , Rio Tinto (Xetra: 855018 - news) and BHP Billiton (NYSE: BBL - news) for ramping up production while overestimating demand in China, leading to a slump in prices.

The price rally has lifted some miners, with Fortescue Metals Group, the world's fourth-largest producer, up 40 percent from its April low, while smaller BC Iron has nearly doubled.

Morgans Financial analysts James Wilson said miners had shown a remarkable turnaround, but not much had changed.

"We need to see demand-linked data improve, or at least stop getting worse, for the Chinese steel industry for us to gain any confidence in the current rally," Wilson (Oslo: WILS.OL - news) said.

Higher Chinese steel production and falling iron ore stockpiles in Chinese ports had helped prices spike, said Capital Economics senior commodities analyst Caroline Bain.

But the market was still "massively oversupplied", she said in a report, keeping a year-end price forecast of around $50 a tonne.

Morgan Stanley (Xetra: 885836 - news) saw a "medium term upside risk for prices" due to production cuts and mine closures, equal to about 15 percent of global sea-borne trade and Chinese domestic output.

It forecast ore prices of $55 a tonne this quarter, easing to $50 in the third and fourth quarters.

Most production cuts outside China have come from mines in Australia, and to a lesser extent from Africa and South America.

See for a factbox on mine closures. (Editing by Richard Pullin)