China construction boom still has vigor

is migrating to lesserprominent regional population centres.

Analyst Daniel Morgan, who visited China earlier this month, said a new round of infrastructure spending signed off by Chinese authorities through the second half of last year was also set to support demand for steel and its key ingredient, iron ore.

“Those (infrastructure projects) have now been executed on and have built up a body of work which is viewed as sustainable for the next two to three years,” Mr Morgan said yesterday.

“It’s not clear that this level of work is going to accelerate but it is a big body of stable work.

“Overall, people expect property to detract from commodity demand over the next 12 months, but the impact in order books to date does not suggest this has occurred yet.”

The price of iron ore has tumbled 40 per cent since February to about $US57 a tonne as stockpiles have mounted on Chinese ports and new supply has come online from Brazil.

The more optimistic outlook for Australia’s biggest export item from UBS follows rivals Citi and Morgans slashing their price forecasts for the commodity over the past week.

Citi expects iron ore to end the year below $US50 a tonne.

UBS has also added its voice to the push for BHP to rid itself of its US onshore oil and gas business.

Resource analyst Glyn Lawcock said it was clear US shale had emerged as a niche business that had struggled to find its place at BHP.

“When you have bought something that hasn’t gone right maybe the better decision is to exit,” he said during a roundtable talk yesterday.

BHP’s expensive tilt at the fracking boom across the Pacific has made it the target of US activist investor Elliott Management.

Shares in BHP closed up 1c yesterday at $22.46.