The world’s biggest iron ore shipper cut its outlook for prices next year by 20 percent as the global market remains well-supplied, loss-making miners are holding out and steel output in China is to shrink further.
Iron ore is seen at US$44.80 per tonne next year, Australia’s Department of Industry, Innovation and Science said in a quarterly report on Friday.
That compares with its previous forecast of US$56 given in the March quarter. The prediction for this year was little changed at US$44.20 per tonne from US$45.
Iron ore prices were whipsawed in the first half of this year after three years of declines, and remain 26 percent higher after construction activity in China picked up, supporting demand.
Despite the large movements, market fundamentals are broadly unchanged, according to the department, which forecast that while the nation’s shipments are set to increase further, export earnings would be flat.
Price projections by the department refer to spot ore with 62 percent content free-on-board Australia.
The commodity delivered to Qingdao was at US$55.07 per dry tonne on Thursday, according to Metal Bulletin Ltd.
Prices swung from a low of US$38.30 in December last year to US$70.46 in April, the highest since January last year.
Rising port holdings in China point to ample supplies. The inventories expanded 1.9 percent to 104.5 million tonnes last week, according to Shanghai Steelhome Information Technology Co.
That is the fourth weekly increase in a row and the biggest gain since the week to April 1.
“With the expectation of weak growth in consumption and stronger growth in supply, prices are forecast to moderate over the remainder of 2016,” the department said. “The revision is based on the assumption that loss-making operations may continue to produce for longer than previously expected.”
Australia’s largest operations are low-cost and are expected to remain competitive at prices below US$50 next year, the department said. Production from Rio Tinto Group, BHP Billiton Ltd, Fortescue Metals Group Ltd and new entrant Roy Hill Holdings Pty will represent a combined 92 percent of the country’s production in 2016-2017, according to the department.
Cargoes from Australia might increase from 818 million tonnes this year to 874 million tonnes next year, while Brazilian exports will also expand, the department estimated.
The two countries are the top shippers.
Still, given the price outlook, Australian earnings from exports will ease to A$48.85 billion (US$36.7 billion) in 2016-2017 from from A$49.14 billion in 2015-2016, the department said.
As authorities in China remain committed to steering the economy away from credit-fueled growth, Australia expects steel output in the largest producer to drop this year and next year.
China will produce 783 million tonnes of the alloy this year and 763 million tonnes next year, the department estimated.
“The rebound seen in China’s demand this year can best be described as the last ray of the setting sun,” said Zhao Chaoyue (趙超越), an analyst at China Merchants Futures Co (招商期貨) in Shenzhen. “Steel is like a human’s bones: You use it more when you are younger, similar to the early stages of economic growth. Now, China’s economy has aged.”
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