Citigroup Inc reduced iron ore and coal forecasts as cheaper oil and declines in producers’ currencies combine to cut supply costs, signaling that the energy rout is feeding through to other commodities. Miners’ shares sank, with Rio Tinto Group plunging in London as copper tumbled.
Iron ore is set to average US$58 per tonne this year and US$62 per tonne next year, down from estimates of US$65 for both years, analysts, including Ivan Szpakowski, wrote in a report yesterday. The forecasts for coking coal and thermal coal were reduced for the same period by as much as 18 percent.
Iron ore slumped last year after BHP Billiton Ltd and Rio Tinto Group boosted low-cost output, spurring a glut just as growth in China slowed. Oil slumped almost 50 percent last year, the most since the financial crisis, as the US pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production.
Iron ore shippers are now benefiting at the expense of Chinese miners as falling transport costs erode domestic producers’ geographic advantage, and depreciating exporter currencies provide a further boost, Szpakowski wrote.
“Declining oil prices have reduced shipping costs by lowering the cost of bunker fuel, which reduces the cost of moving iron ore from Brazil and Australia to China,” said Mark Keenan, head of commodities research for Asia at Societe Generale SA in Singapore. “This has the knock-on effect of easing the impact of lower iron ore prices on producers.”
Goldman Sachs Group Inc on Tuesday said that cost-deflation spurred by cheaper energy prices and a rising US dollar was contributing toward weaker copper prices. That metal plunged as much as 8.7 percent on the London Metal Exchange yesterday, helping to pull the Bloomberg Commodity Index to a 12-year low.
Rio, which produces iron ore and copper, retreated as much as 5.8 percent in London, and traded 5.1 percent lower at ￡27.7 at 8:27am yesterday. BHP, which mines iron ore and copper and supplies crude, dropped as much as 6.7 percent. In Sydney, Fortescue Metals Group Ltd plummeted 8.2 percent.
Australia and Brazil are the world’s largest iron ore exporters, with Rio and BHP competing with Rio de Janeiro-based Vale SA to supply China, the world’s largest buyer. Vale has successfully usurped its two nearest rivals to become the lowest-cost producer as the slump in the price of oil cuts shipping costs, Sanford C. Bernstein Ltd said in a report this week.
The Australian dollar and the Brazilian real each dropped more than 10 percent over the past four months. The Australian currency was at US$0.81 after reaching a five-and-a-half-year low of US$0.8 on Wednesday last week.
Iron ore costs have fallen about US$7 per tonne in US dollar terms as a result of foreign-exchange moves for high-cost exporters, the Citigroup analysts wrote. In an oversupplied market, which will need to be balanced through cutbacks to production, that is an ominous sign for prices, they wrote.
Ore with 62 percent content delivered to Qingdao, China, sank 2.2 percent to US$68.74 per dry tonne on Tuesday, the lowest price since Dec. 29 last year, according to Metal Bulletin Ltd. The benchmark dropped to a five-year low of US$66.84 on Dec. 23 last year.
Iron ore imports by China rebounded 29 percent to a record 86.85 million tonnes last month from November last year, according to customs data released on Tuesday. For last year, they totaled 932.5 million tonnes from 820.3 million in 2013, the data showed.
Coking coal, used in blast furnaces, will average US$113 per tonne this year, 7.4 percent less than previously forecast, and US$127 next year, down 9.3 percent, Citigroup said. Thermal coal at Australia’s Newcastle port, the benchmark for Asian contracts, will average US$55 per tonne this year and US$64 next year, down 18 percent and 15 percent, the bank said.
Indonesia is the world’s largest exporter of the power-station fuel.
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