Iron Ore Prices May Average 11% Lower in 2012, IG Markets Says

Iron ore prices may decline by as much as 11 percent on average this year because of concern that global economic growth may falter, according to IG Markets institutional dealer Chris Weston.

The steelmaking raw material may average between $150 and $160 a metric ton in 2012, Weston said in a phone interview from Melbourne. Iron ore with 62 percent content delivered to the port of Tianjin, China averaged $167.60 a ton in 2011 and traded at $138.50 on Dec. 30, according to The Steel Index Ltd.

Citigroup Inc. last month cut its estimate for 2012 by 7 percent to $148 a ton, citing a deteriorating macroeconomic environment and slowing growth in China’s steel output. The weakest increase in demand in at least a decade for shipments of iron ore, the second-biggest commodity cargo after crude oil, means rates for capesize vessels will plunge to the lowest level since 2002.

“I see flat trade, I don’t see any explosive price action to the upside,” said Weston. “There are obviously some real risks to global growth and Chinese growth as well.”

Commodities from wheat and palm oil to copper declined in 2011 as the European debt crisis and declining global growth stoked concern that demand for raw materials will shrink. Economic growth in China will slow to 8.5 percent this year, after growing 10.4 percent in 2010, the Organization for Economic Cooperation and Development projected on Nov. 28.

Ore delivered to China from Australia, the biggest exporter, will average $150 a metric ton in 2012, up from a forecast $140 a ton, Goldman Sachs & Partners Australia Pty said in a Dec. 14 report, citing “substantial delays” to new projects and expansions in Brazil.

“I do see some positivity in terms of the supply side,” IG’s Weston said. “There is potential for substantial delays in the Brazilian projects, so that will keep prices relatively elevated and supported.”

To contact the reporter on this story: Madelene Pearson in melbourne at mpearson1@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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