Iron Ore Seen at $50 in Last Quarter as Majors Gain Control

  • Supply surge from top producers has been delivered, UBS says
  • Many high-cost miners quit market, according to Daniel Morgan

Iron ore may average about $50 a metric ton in the final quarter of the year after low prices forced many high-cost producers to quit the market and the world’s biggest mining companies completed a round of expansions, according to UBS Group AG.

The supply surge from the largest producers has been delivered, with output stable for several months now, and there’s been a widespread exit of smaller players, Daniel Morgan, an analyst in Sydney, said in an e-mailed response to questions. Benchmark prices in Qingdao were at $57.37 a dry ton on Thursday, and averaged $54.69 so far this quarter.

Expansions by BHP Billiton Ltd. and Rio Tinto Group in Australia and Brazil’s Vale SA helped to drag prices to the lowest level in at least six years in July, prompting the closure of less efficient miners while increasing the clout of the largest producers. Brazil and Australia were gaining market share in China, the world’s biggest consumer, Vale Chief Executive Officer Murilo Ferreira told reporters this week.

“The majors have just regained control of the iron ore market and can, if they wish, curtail supply to support the price,” said Morgan. “Under $50, we look for supply factors to support the price.”

Quarterly Loss

Ore with 62 percent content delivered to Qingdao retreated 19 percent this year, according to Metal Bulletin Ltd. The commodity bottomed at $44.59 on July 8, a record in data going back to May 2009, as demand growth stalled in China and supply rose. It’s 3.3 percent lower this quarter after rallying 16 percent between April and June.

Australia and Brazil will account for a combined 87 percent of global seaborne trade next year from 83 percent in 2015 and 79 percent last year, according to Australia’s Department of Industry & Science. Next year, exports from Australia will rise 10 percent to 824 million tons, it said.

“From here, there is more supply looming,” said Morgan, citing prospects for the start of shipments from Gina Rinehart’s Roy Hill mine in Australia’s Pilbara next quarter and Vale’s S11D project, which may begin from late next year. “So with flattish demand growth there is still a headwind to prices from here.”

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