Iron Ore CEO Who Called This Year's Crash Sees Further Slump

  • Chinese, Indian miners are adding new supply, Kumba CEO says
  • Goldman Sachs also predicts iron ore prices will retreat

Iron Ore Faces Extreme Volatility

Kumba Iron Ore Ltd. Chief Executive Officer Themba Mkhwanazi correctly predicted in February that his company’s commodity would plunge40 percent. After a recent recovery, he expects it to fall again.

Iron ore has rallied over the past six weeks, topping $70 a metric ton on the back of a steelmaking recovery in China, the largest user. Prices will likely average $55 to $60 a ton in the second half, Mkhwanazi said in an interview.

“When you look at fundamentals -- port stocks, activity around steel production -- it’s very supportive of a price range of $55-$60 a ton,” Mkhwanazi said on Tuesday.

A resurgence in steelmaking in China, helped by the seasonal mid-year increase in production, has sparked a 30 percent rally in iron ore since June 13, benefiting global low-cost miners such as Australia’s Rio Tinto Group and BHP Billiton Ltd., and Brazil’s Vale SA. But the higher prices have also prompted producers in China and India to increase supply, said Mkhwanazi.

“We’re likely to see some moderation because the high-cost supply has now come back in to the market,” he said.

He’s not alone in forecasting lower prices. Before iron ore rose back to $70 this month, Goldman Sachs Group Inc. flagged prospects for weaker prices, also due to supply expectations. The bank is predicting an average of $47 next year, it said in a note dated June 29. Australia’s government also sees sub-$50 iron ore in 2018.

Discretionary Dividends

Kumba, which operates Africa’s biggest iron ore mine - Sishen - in South Africa, said Tuesday that it plans to resume dividends after a two-year hiatus caused by plunging prices. The payouts will be "discretionary" in the future, rather than based on an earnings ratio, to ensure the ability to weather a downturn, Mkhwanazi said.

In February, when iron ore had rallied past $90, Mkhwanazi said prices weren’t justified by fundamentals. The raw material peaked later than month and fell 44 percent to a low in June, before rebounding to $70.43 on Wednesday, according to data from Metal Bulletin Ltd.

Kumba shares slid 3.7 percent on Wednesday, giving back some of yesterday’s 17 percent rally, the biggest advance since March 2016. Its majority owner Anglo American Plc gained 1.3 percent in London.

“We have to make sure that we heed the lessons of the past,” Kumba’s Acting Chief Financial Officer Johan Prins said. “We don’t want to get into a gearing position. That implies keeping some cash on the balance sheet.”

— With assistance by Jasmine Ng

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