Iron Rally Toward $50 May Reverse, Australia's Top Mill Saysby and
Prices more likely to drop than rise, BlueScope CEO predicts
Supply growth, mill closures will expand glut, O'Malley says
Iron ore’s surprise rebound toward $50 a metric ton may run out of steam as a further increase in global supplies and the closure of some steel producers in China will boost a global glut, according to the head of Australia’s largest steelmaker.
Prices are more likely to drop than rise, said Paul O’Malley, chief executive officer of BlueScope Steel Ltd. Almost all of China’s mills are losing money, which means that further production cuts are possible, he said on Monday.
The commodity bottomed at the lowest level in over six years in December as surging low-cost output from miners including Vale SA in Brazil, and Rio Tinto Group and BHP Billiton Ltd. in Australia coincided with shrinking steel consumption in China. Since then, prices have rebounded to cap the biggest gain since April last week on a seasonal upswing in consumption in the largest user and signs that mine-supply growth may ease. Still, the uptick probably won’t endure, according to O’Malley.
Iron ore “is more likely to go down than to go up, both on the fact of increased supply coming on in the market and on the fact that the whole steel industry globally is struggling to make money,” O’Malley said on a conference call with reporters after the company reported a 47 percent rise in underlying first-half net profit. “More mills will close down.”
Ore with 62 percent content advanced 2.9 percent to $48.52 a dry ton on Friday, the highest level since Nov. 11, according to Metal Bulletin Ltd. The commodity -- which tumbled to $38.30 on Dec. 11, the lowest for daily prices dating back to May 2009 -- jumped 11 percent last week.
Futures in Singapore and Dalian on Monday signaled that further gains were possible in the Metal Bulletin price, which is updated once a day. The contract on SGX AsiaClear in Singapore surged as much as 4.7 percent to $48.36 a ton, while Dalian Commodity Exchange’s price rose by the limit to gain 3.5 percent.
Expanded output from the top producers will keep the market oversupplied, according to Morgan Stanley, which estimates the global seaborne glut at 45.8 million tons this year and 34.1 million tons in 2017. Supply will increase by about 80 million tons in 2016 and 94 million tons next year, Liberum Capital Ltd. said in a note last week.
As China’s steel demand dropped and prices sank, mills in the country churned out less last year for the first time since 1981. Crude-steel output fell 2.3 percent to 804 million tons, official data show. Weaker local demand also prompted mills to export record amounts, spurring a rise in trade tensions.
While steel exports from China will continue to be significant, cargoes may start to fall over the next 12 months, O’Malley said in a Bloomberg Television interview. Chinese steelmakers are losing between 30 yuan ($4.60) and 100 yuan on each ton, he said, citing public announcements and talks with mills.