Australia cut its iron ore price estimate for next year by 33 percent, as surging output in the world’s top exporter outpaces Chinese demand growth, adding to a surplus.
Prices will average about US$63 a tonne, the Australian Department of Industry said yesterday. That compares with US$94 a tonne forecast in September by the then-Australian Bureau of Resources and Energy Economics, which is now part of the department. The commodity is set to average about US$88 this year, yesterday’s quarterly report said.
Iron ore tumbled 49 percent this year, as miners including Rio Tinto Group and BHP Billiton Ltd expanded production in Australia, pushing the market into oversupply. Prices may drop to less than US$60 next year as increasing output widens a glut just as demand growth falters in China, Roubini Global Economics LLC said.
Australia this month predicted the commodity will trade at about US$60 over the next two years.
GLUT
“The current market oversupply is expected to prevail through the start of [next year] in response to a likely ongoing cyclical downturn in China’s housing sector,” the report said. “More of China’s production is expected to exit the market, particularly over the northern winter. A longer period of even lower iron ore prices may be required than previously expected to push supply out of the market.”
The projections refer to spot ore with 62 percent content free-on-board Australia. Shipments from Australia will reach a record 766 million tonnes next year from 768 million tonnes forecast in September and 718 million tonnes this year, it said. China’s total imports will rise to 973 million tonnes next year from 938 million tonnes this year, it said.
Ore with 62 percent content delivered to Qingdao, China, added 1.1 percent to US$69.17 a dry tonne on Friday last week, data compiled by Metal Bulletin Ltd showed. Prices slumped to US$68.05 on Dec. 17, the lowest level in more than five years.
China, which buys 67 percent of global seaborne supply, is set to record its weakest annual growth since 1990.
TREND
The department previously estimated iron ore next year at about US$97 a tonne in June and US$103 a ton in March. Lower prices for Australia’s most valuable commodity export will contribute to a drop in the value of resource and energy shipments to A$176 billion (US$143 billion) in the year ending June 30, from a previous forecast of A$192.4 billion, the department said yesterday.
While prices are set to remain weak next year, they appear “oversold” and there is potential for a relief rally in the second half of next year, Australia & New Zealand Banking Group Ltd (ANZ) said in a report yesterday. Any recovery will be driven by supply cuts, including high-cost mines in China, where almost the entire industry is loss-making at prices now, ANZ said. The bank forecast iron ore to average US$80 a tonne in 2015.
Iron ore will average US$67 a ton next year, 24 percent less than previously forecast, JPMorgan Chase and Co said in an e-mailed report received on Dec. 9. Low-cost producers are unlikely to curb supplies, the bank said.
Morgan Stanley estimates iron ore will average US$79 a ton next year, while Citigroup Inc says it might drop to less than US$60.
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