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Iron Ore to Stay ‘Firm’ Next Month Before Drop, Ord’s Arden Says

Iron ore prices may remain “firm” in the next month as rains disrupt supplies from Brazil and higher export taxes reduce Indian shipments, according to Ord Minnett Ltd.

“There’s not a lot of surplus material out there,” said Peter Arden, a Melbourne-based analyst at Ord, who’s followed prices for the past 15 years. “For the next month or so, it looks like things will stay pretty firm.”

Iron ore “remains our most favored bulk commodity” and may average $156 a metric ton this year and $160 a ton in 2013 as Chinese steel production expands and Indian supplies decline, Morgan Stanley analysts Peter Richardson and Joel Crane said in a report today. Prices averaged $167.60 in 2011, according to The Steel Index Ltd.

Vale SA (VALE3), the largest iron-ore producer, will lose about 20 percent of its January output in southern Brazil because of rains in three of the country’s states, the company said Jan. 12, the day after declaring force majeure on shipments. Exports from India (EXIOHIND), the third-largest shipper, will probably fall 50 percent this fiscal year after the government raised levies, the Federation of Indian Mineral Industries said this month.

“Although we do not now expect iron ore prices to be as strong in 2012 as in 2011, a range of supportive supply issues and further growth in steel production in China should keep prices well above marginal cost,” Morgan Stanley said.

Chinese Output

Crude steel output in China, the world’s biggest producer, gained 8.9 percent last year to a record 683.27 million tons in 2011, the National Bureau of Statistics said today. Annual production gained 10 percent in 2010 and 13 percent in 2009, after climbing 2.3 percent in 2008, according to the China Iron and Steel Association.

“We think that there will be some softness coming into the market,” Ord’s Arden said. “Steel demand is probably going to flatten out in China. It’s been growing very strongly and they’ve got infrastructure they still want to do, but the housing is going to be a bit of a drag on demand.”

China’s economy expanded 8.9 percent in the fourth quarter from a year ago, the slowest pace in 10 quarters on weaker exports and monetary tightening, cutting demand for steel used in houses, cars and machinery.

Iron ore with 62 percent content delivered to the port of Tianjin traded at $140.50 a ton yesterday, 1.2 percent lower than Jan. 11, data from The Steel Index showed. Prices advanced 5.8 percent in December, after surging 11 percent in November.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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