Top Iron Ore Shipper Cuts 2016 Forecast by 19% as Glut Growsby
Australia's exports may expand a further 13% next year
Overcapacity in China's steel industry may curb output
The world’s biggest iron ore exporter cut its price forecast for next year by 19 percent as supply continues to swell and slowing growth in China hurts demand in the biggest user.
Prices will average $41.30 a metric ton in 2016 compared with $51.20 forecast in September, Australia’s Department of Industry, Innovation & Science said in a quarterly outlook Tuesday. The department cut its average price for 2015 by 4.7 percent to $50.40 a ton.
Iron ore, the country’s largest export earner, lost 43 percent this year as low-cost miners including Rio Tinto Group, BHP Billiton Ltd. and Vale SA pressed ahead with expansions to defend market share, feeding a glut as demand in China faltered. Exports of Australian iron ore will probably expand a further 13 percent next year after rising about 7 percent this year, according to the government.
“Increasing supply from Australia and Brazil is forecast to drive seaborne iron ore spot prices down in 2015 and 2016,” the department said. “Overcapacity in China’s steel industry is expected to exert downward pressure on steel prices and reduce the incentive to increase output.”
Price projections by the department refer to spot ore with 62 percent content free-on-board Australia. The raw material delivered to Qingdao, China, advanced 0.8 percent to $40.80 a dry ton on Tuesday, according to Metal Bulletin Ltd. Iron ore bottomed at $38.30 on Dec. 11, a record in daily prices dating back to May 2009.
Cargoes from Australia will probably climb to 868 million tons next year from 767 million tons in 2015, the department said. The increase shows that miners in Australia will build market share in China as the country’s demand for iron ore imports expands at a slower pace and smaller rivals quit, according to the government.
Iron ore will remain under $40 for the next three years as China’s slowdown forces the global industry into a long period of hibernation, Goldman Sachs Group Inc. said in a report last week. The bank expects mine closures to accelerate next year as the health of China’s steel industry deteriorates.
Demand in China is weakening as policy makers seek to steer the world’s second-largest economy away from investment-led growth to one driven by consumer demand and services. Crude steel production will shrink to 800 million tons in 2016 from an estimated 808 million tons this year, according to the Australian government.
More production cuts are needed as China’s demand weakens further and mills encounter stiffer opposition to exports, said Li Xinchuang, deputy secretary-general of the country’s iron and steel association. Steel output will drop to about 783 million tons next year from about 806 million tons in 2015, the association forecasts.
As raw material prices sink, Australia’s earnings from exporting resources and energy commodities will drop 3.7 percent to A$165.6 billion ($119.6 billion) in 2015-2016, according to the government. Higher production at existing mines and the start of production at Roy Hill will support iron ore volumes, the department said.