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Australia Cuts Iron Ore Estimate as China’s Expansion Slows

June 26 (Bloomberg) -- Australia, the world’s largest iron ore exporter, reduced its price estimates for the steelmaking raw material this year and in 2014 as economic growth in China slows while shipments climb.

Prices will average $117 a metric ton in 2013 from $119 forecast in March, the Bureau of Resources and Energy Economics said in a report. Australia may ship 571 million tons this year and 664 million tons in 2014, compared with previous estimates of 554 million tons and 662 million tons, the Canberra-based bureau said. Exports totaled 494 million tons in 2012.

Iron ore tumbled 28 percent from a 16-month high in February on concern expansion in the top buyer is faltering. Goldman Sachs Group Inc. has joined banks from Barclays Plc to HSBC Holdings Plc in paring China’s growth estimates this year to 7.4 percent, below the government’s 7.5 percent goal. The biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998.

Prices have declined “in line with changing sentiment over China’s economic growth and steel output,” the report said. “It’s expected that the monthly rates of production will moderate as the year progresses,” it said, referring to steel.

China’s steel production climbed to a record 67 million tons in May, according to the statistics bureau. The country will import 774 million tons of iron ore this year and 805 million tons in 2014, compared with the 773 million tons and 805 million tons estimated in March, the bureau said.

Morgan Stanley

The price forecast compares with Morgan Stanley’s 2013 estimate of $132 a metric ton. The bank said yesterday iron ore is its preferred exposure to bulk commodities as supply growth has been less than bearish market expectations and China’s imports have continued to grow even as demand is weak for finished steel.

Iron-ore shipments to China from Australia’s Port Hedland, the world’s biggest bulk terminal, climbed to a record 23.3 million tons in May, according to the port authority.

Global seaborne demand will increase 9.1 percent in 2013, outpacing a 5.7 percent gain in supply, Morgan Stanley said yesterday. The bank estimates a global seaborne surplus in 2014, from a previous forecast of a surplus in 2015.

China’s central bank said yesterday it will use tools to ensure money-market stability and tight liquidity is set to ease in the first official signs of relief for a cash squeeze.

Inventories

Prices will decline by $10 a ton in the near-term and average $120 a ton during the second half of the year from about $140 in the first six months, according to Macquarie Group Ltd. A rally in iron prices will happen once iron ore and steel inventories have fallen, it said.

Inventories at Chinese ports were 71.94 million tons by June 21 after declining to a four-year low of 66.26 million tons on March 8, according to Beijing Antaike Information Development Co. The country will hold smaller inventories as global supply expands, Standard Bank Group said this week.

Prices will average $112 a ton in 2014, compared with $114 forecast in March, on increasing seaborne supply, the Australian bureau said. The bureau’s price forecasts refer to ore with 62 percent iron content free-on-board Australia.

The same grade delivered to the Chinese port of Tianjin fell 0.2 percent to $113.80 a dry ton today, according to data from Steel Index Ltd. Prices, which reached $158.90 on Feb. 20, have averaged $137.26 in 2013. They fell to an almost three-year low of $86.70 in September as China’s growth slowed.

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 reporter on 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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