Australia, the largest iron ore exporter, cut its price estimate for this year and predicted a further drop in 2015 as mining companies including Rio Tinto Group and BHP Billiton Ltd. increase output and spur a glut.
Spot prices will average about $110 a ton this year from $119 forecast in December and $126 in 2013, the Canberra-based Bureau of Resources and Energy Economics said today. Prices may average about $103 a ton in 2015, it said in a report.
Iron ore fell into a bear market this month on speculation that slowing economic growth and credit concerns in China, the biggest buyer, may curb the expansion in demand just as global supply increases. BHP and Rio Tinto (RIO) predict lower prices this year after miners spent billions of dollars to boost output. Banks from Citigroup Inc. to Standard Chartered Plc predict a surplus, and Goldman Sachs Group Inc. listed iron ore among its least-preferred commodities for 2014.
“In the first half of the year, demand growth and supply growth are pretty evenly matched,” Joel Crane, an analyst at Morgan Stanley, said by phone from Melbourne. “The second half is when the supply growth picks up pace and outpaces demand. That’s where we see weakness.”
Shipments from Australia will rise 19 percent to a record 687 million tons this year and climb to 749 million tons next year, the bureau said. Previously, the bureau estimated exports in 2014 at 709 million tons. The agency’s price forecasts refer to spot ore with 62 percent content free-on-board Australia.
Iron ore with 62 percent content delivered to the Chinese port of Tianjin rose 1.2 percent to $111.80 a dry ton yesterday, according to The Steel Index Ltd. Prices fell 17 percent this year and are heading for the biggest quarterly loss since the period to September 2012. The steel-making raw material dropped to $104.70 on March 10, the lowest level since October 2012.
“The iron ore price will always have volatile periods,” Neville Power, chief executive officer of Fortescue Metals Group Ltd. (FMG), said at a conference in Hong Kong today. The company, Australia’s largest exporter after Rio and BHP, isn’t concerned by the drop, with a break-even cost of about $70 a ton, he said.
China will import a total of 872 million tons in 2014, from 852 million tons forecast in December, the bureau said. Purchases will increase to 916 million tons in 2015, it said. The country’s crude-steel production may total 802 million tons this year, from 803 million tons estimated in December, and increase to 819 million tons in 2015, it said.
Premier Li Keqiang is under increasing pressure to take steps to address weakening economic expansion amid deepening concern that the nation will miss its 7.5 percent growth target this year. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to 48.1 on March 24, compared with February’s final 48.5 figure and weakening for a fifth straight month. Numbers above 50 signal expansion.
New iron ore supply from Australia may total 92 million tons this year, pressuring prices in the second half, Standard Chartered said in a report yesterday. Prices may average $108 a ton in the fourth quarter from $122 this quarter, it said. The bank predicts a global surplus of 136 million tons in 2014, increasing to 170 million tons in 2015, from a 77 million ton deficit last year, it said Feb. 13.
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