Iron-Ore Forecasts Raised by Australia as China Demand Jumps

Photographer: Carla Gottgens/Bloomberg

A stacker loads crushed iron ore onto a stockpile at Fortescue Metals Group Ltd.'s Cloudbreak operation in the Pilbara region of Western Australia. Australia may ship 570 million tons of ore this year, up 16 percent from 2012, and 669 million tons in 2014, the Bureau of Resources and Energy Economics said. Close

A stacker loads crushed iron ore onto a stockpile at Fortescue Metals Group Ltd.'s... Read More

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Photographer: Carla Gottgens/Bloomberg

A stacker loads crushed iron ore onto a stockpile at Fortescue Metals Group Ltd.'s Cloudbreak operation in the Pilbara region of Western Australia. Australia may ship 570 million tons of ore this year, up 16 percent from 2012, and 669 million tons in 2014, the Bureau of Resources and Energy Economics said.

Australia, the largest iron-ore exporter, raised its price estimates for the steelmaking raw material as surging Chinese consumption absorbs increased supplies of the world’s biggest commodity cargo after oil.

Prices will average $119 a metric ton in 2014 from a $112 forecast in June, the Bureau of Resources and Energy Economics said in a report today. The commodity will average $121 this year compared with $117 estimated in June, the Canberra-based bureau said. China will import 872 million tons next year, 8.3 percent more than previously forecast, and by 2018 shipments from overseas may increase to almost 1 billion tons, it said.

Iron ore entered a bull market in July as users in China replenished stockpiles that shrank in March to the lowest level since 2009. Morgan Stanley said last month that the commodity will be supported into the first half of 2014 before a global surplus emerges, while Citigroup Inc. and BHP Billiton Ltd. have bearish short-term views as mining companies boost output.

“It would take a complete collapse in Chinese steel production for iron-ore prices to really see a major move lower because inventory levels for iron and steel are quite low,” said Joel Crane, a Melbourne-based analyst at Morgan Stanley. Market conditions in the first half of next year will be similar to those at present, and iron-ore prices are expected to average between $110 and current levels, he said.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin was unchanged at $134.40 a ton today, according to The Steel Index Ltd. Prices have rallied 19 percent from this year’s low on May 31. The bureau’s price forecasts refer to ore with 62 percent content free-on-board Australia.

Emerging Markets

Australia may ship 570 million tons of ore this year, up 16 percent from 2012, and 669 million tons in 2014, the bureau said. The country’s exports are projected to rise at an average annual rate of 8 percent a year from 2014 to 2018, it said.

Emerging-markets demand and supply constraints mean it’s premature to talk about the end of the super cycle that brought a longer-than-average period of rising commodity prices, McKinsey & Co. said Sept. 26. China’s growth will hold above 7 percent through 2015, forecasts compiled by Bloomberg show, and the Manila-based Asian Development Bank said today that China was expected to grow 7.6 percent this year.

The global seaborne iron-ore market is seen shifting to oversupply next year as producers from BHP to Rio Tinto (RIO) Group and Vale SA deliver capacity expansions. The surplus will reach 82 million tons in 2014 and expand through 2017, Goldman Sachs Group Inc. said in July. Citigroup last month forecast prices at $115 in three months on the expected surge in seaborne supply.

Steel Quality

Chinese steel mills are expected to increase their reliance on imported iron ore as local grades and production drop, and steel producers seek to boost the quality of their output, the bureau said. Steel output in China, the largest producer, will expand 3.4 percent to 788 million tons in 2014, it forecast.

Rio Tinto, the second-biggest iron-ore exporter, officially opened the Cape Lambert wharf in Western Australia today, part of its expansion in the Pilbara to 290 million tons of capacity, according to a statement. Rio’s mines in Western Australia produced a total of 239 million tons last year.

Increased supplies have “exerted downward pressure on many commodity markets more recently and we expect this trend to continue over the short term,” BHP (BHP) Chairman Jac Nasser said in the Melbourne-based company’s annual report on Sept. 25. BHP is the world’s third-largest iron-ore exporter.

Stockpiles in China stood at 70 million tons in the week ended Sept. 27, down from a seven-month high in the period to Aug. 30, according to Beijing Antaike Information Development. Inventories are still 24 percent below a year earlier.

Iron ore can be 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 reporters on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net; 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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