Iron Ore Seen by CLSA Holding Above $100 as Supply Absorbed

Iron ore will be well-supported at more than $100 a ton this year on sustained demand from China, the largest user of the steel-making raw material, according to CLSA Ltd., which said the longer-term outlook is more bearish.

Ore may trade between $110 to $120 in 2013 amid below-average inventories, Ian Roper, commodities strategist, told a conference in Singapore today. Ore with 62 percent iron content at China’s Tianjin port was at $130.20 a ton yesterday, and last traded below $100 in September, The Steel Index data show.

The commodity has lost 10 percent this year, nearing bear-market territory, amid forecasts for increased global seaborne supplies, especially from Australia in the second half. Demand is still there, and while global supply growth is coming, it perhaps won’t be as great as some people feared, Roper said.

“My long-term view, I’m still structurally very bearish on the iron ore outlook,” said Roper, who’s based in Shanghai. “Nearer term, more neutral, not quite so bearish. I don’t think it’s too much of a disaster this year.”

Imported ore at Tianjin has lost 18 percent since peaking at $158.90 on Feb. 20, nearing the 20 percent decline that some investors use to define a bear market. Last September, the raw material plunged to $86.70 as China’s economy slowed for seven consecutive quarters and mills destocked.

Supply Growth

Ore supplies may expand about 70 million tons this year, led by expansions in Australia, and that will be absorbed without driving prices lower than last year as China uses more and mills restock, said Roper, who also flagged the potential for supply disruptions. China’s steel demand is projected to increase 5 percent in 2013, he said.

Global seaborne supply will climb 78 million tons to 1.13 billion tons this year, according to Morgan Stanley, which forecasts the market will swing into surplus in 2015 after a run of deficits stretching back to least 2005. Prices will average $133 a ton this year, the bank said in an April 23 report.

Steel demand in China “is not really bad but the main problem -- very few people are making money in the steel industry -- is that inventory is just far too high,” said Roper. “The good news is steel inventories have finally turned around, inventory is finally heading down.”

Rio Tinto Group’s expansion of its Pilbara iron ore operations is on track, Sam Walsh, chief executive officer of the second-biggest mining company, said in speech notes for the company’s annual general meeting in Sydney today. Rio’s total iron ore supply may gain 2.8 percent to 255 million tons this year, and a further 17 percent to 298 million tons in 2014, Morgan Stanley estimates.

The global iron ore market is becoming increasingly uncertain because of the amount of new projects being developed or planned where completion dates aren’t clear, Macquarie Group Ltd. said in e-mailed report yesterday.