Iron-Ore Price Forecast Lowered by Australia as China Cools

Australia, the world’s biggest iron ore exporter, cut its price forecast and said rates may decline 11 percent from last year as slowing growth in China, the largest buyer, curbs demand.

The steelmaking raw-material will average $136 a metric ton in 2012, the Bureau of Resources and Energy Economics said in a report today. That compares with $140 estimated by the Canberra- based bureau in March and an average of $153 last year. Shipments from the country may total 479 million tons, down from the 493 million tons predicted in March, it said.

Prices dropped 2.2 percent this year as the Chinese economy expands at the slowest pace since 2009 and Europe’s debt crisis threatens global growth. BHP Billiton Ltd. (BHP), the top miner, said June 6 the debt crisis and spreading economic uncertainty will affect demand for commodities in the short term. Chairman and Chief Executive Officer Lakshmi Mittal of ArcelorMittal (MT), the largest steelmaker, said June 19 demand for steel won’t recover soon to levels before the financial crisis.

“There has been a slowdown and prices have come back with that change in momentum,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “The outlook for China is slowing but they still do require significant iron ore.”

China may expand 8.2 percent in 2012, compared with 9.2 percent last year, according to the median forecast of 15 economists surveyed by Bloomberg this month. The nation’s gross domestic product growth slowed for a fifth quarter to 8.1 percent in the first three months, government data showed.

Import Demand

The forecast for lower prices stems from increasing supply from Australia and Brazil and moderating growth in imports, the report said. China’s steel consumption may total 648 million tons this year, from 657 million tons forecast in March, because of the slowing economy, the bureau said.

HSBC Holdings Plc lowered this week its growth estimate for China this year to 8.4 percent from 8.6 percent. That followed a cut by Citigroup Inc., which expects expansion of 7.8 percent, reflecting “anemic” domestic activity in the second quarter and a further weakening of European demand. Daiwa Securities Group Inc. puts growth at 8.3 percent.

The world’s second-biggest economy signaled a more- aggressive approach to sustaining expansion last month when Premier Wen Jiabao called for more efforts toward stabilizing growth. The central bank cut interest rates on June 7 for the first time since 2008 and the economic planning agency is stepping up approvals of investment projects.

Short-Term Outlook

“Recent data that indicate a lower-than-expected rate of growth in China are key concerns for the short-term outlook,” the bureau said today. China’s economic growth may be 7.9 percent in 2012 from 8.2 percent estimated in March, it said.

Chinese manufacturing may shrink for an eighth month in June, according to data from HSBC and Markit Economics, and home values dropped in a record number of cities during May.

Imports of iron ore by China will grow 8 percent this year, slowing from 10 percent in 2011, according to London-based Clarkson Plc, the world’s biggest shipbroker. Shipments totaled 63.8 million tons in May, the first increase in three months, customs data show. The country’s mills produced 61.2 million tons of steel last month, 1.1 percent more than in April, according to the World Steel Association.

Steel output this year in China, which produces almost half of the world’s total, will be 700 million tons, the China Iron and Steel Association said June 16. That would be a 2.5 percent increase from 2011, the smallest annual rise since 2008, according to data compiled by Bloomberg News using figures from the steel association.

Prices of hot-rolled coil, a benchmark product, have fallen for 10 weeks to 4,146 yuan as of yesterday, according to researcher Beijing Antaike Information Development Co.

The bureau’s forecast referred to iron ore with 62 percent content free-on-board Australia. The same grade of ore delivered to the Chinese port of Tianjin fell 1.2 percent to $135.40 a dry ton yesterday, according to an index compiled by The Steel Index Ltd. Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port moisture can account for 8 percent to 10 percent of the ore’s weight.

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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