Iron Seen Dropping to $45 by UBS as Australia Exports Jump

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Iron ore shipments from Australia are set to pick up in the second half on mine expansions from the largest suppliers, according to UBS Group AG, which forecast prices may drop to average $45 a metric ton between July and December.

While some higher-cost supply is being cut, including from Atlas Iron Ltd., growth in output will continue, the bank said in a report received on Wednesday. Rio Tinto Group’s next 60 million tons a year may come on line from the second half, and BHP Billiton Ltd. is still moving toward capacity of 270 million tons a year from an estimated 260 million tons, according to the bank. The new Roy Hill mine may also start shipments, it said.

Iron ore surged toward $60 a ton this month after BHP said that it was deferring some port works in Australia that may slow its growth after 2016. Brazil’s Vale SA followed with a signal that as much as 30 million tons of its higher-cost supply may be cut even as the Rio de Janeiro-based company pressed on with an expansion of cheaper supply. Miners were stepping up efforts to reduce their costs, according to UBS.

“We anticipate growth in export volumes through 2015, particularly in the second half, as new capacity from Rio Tinto, Hancock Roy Hill and ongoing asset optimization from BHP Billiton allow increased shipments,” UBS said in the report. “Recent cuts help, but the market is expected to remain in an albeit-smaller surplus over the medium term.”

Ore with 62 percent content at Qingdao rose 2 percent to $58.70 a dry ton on Tuesday, according to data from Metal Bulletin Ltd. Prices remain 69 percent below a 2011 record, and averaged about $59.71 so far this year. UBS’s second-half forecast is below this year’s low of $47.08, set on April 2.

Pilbara Production

“Rio Tinto’s public guidance on Pilbara production is 330 million tons by the end of 2015,” said spokesman Ben Mitchell. The Pilbara is the country’s biggest producing region, with mines run by Rio, BHP and Fortescue Metals Group Ltd. Rio will meet shareholders in Perth on Thursday at its annual meeting.

Exports from Australia, the world’s biggest shipper, climbed about 5 percent in March from February to 61.4 million tons, UBS said, citing figures from the Australian Bureau of Statistics. Overseas sales surged to 716.7 million tons last year from 582.8 million in 2013, it said. The bank forecasts that the country’s exports may total 809 million tons in 2015.

“Supply cuts are not sufficient to drive higher prices when operators are cutting costs, and as demand remains weak,” UBS said. Risks to consumption remained in China, where the property sector is under pressure, it said. The bank’s report covered an analysis of Australia’s bulk-commodity shipments in March and, separately, looked at iron ore supply and costs.

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