Iron ore prices may head down as China cuts its steel over capacity.
That's bad news for my country.
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Iron ore price supply test ahead for miners, says DBS
Oct 4 2016 at 4:28 AM
Updated Oct 4 2016 at 3:45 PM
Financial Review
Australia's two biggest iron ore producers have slowed the pace of supply growth
as a decade-long expansion nears an end.
by Jasmine Ng and David Stringer
The world's largest iron ore producers will need to exert tight control over supplies to keep prices about $US45 a tonne as China's drive to weed out unwanted steel capacity poses risks to demand, according to Singapore-based DBS Group.
The commodity's rally in 2016 may come under pressure as consumption in China is poised to weaken in the coming years, chief investment officer Lim Say Boon said in a quarterly report. Iron ore was at $US55.86 a tonne on Monday, and hasn't traded below $US45 since February, according to Metal Bulletin Ltd.
Iron ore sagged in September, eroding this year's surprise advance, on resurgent concern that supply growth will again swamp the market even as some miners say they are now prioritising the value of exports over volumes. With Brazil's Vale set to start a four-year ramp-up of its S11D project, banks from Citigroup to Morgan Stanley, as well as miner BHP Billiton, have said the additional output will probably contribute to weaker prices.
"Although the price of iron ore has been in an uptrend since the start of the year, it could be difficult for the market to sustain those gains," Lim wrote in the report, which was received on Monday. It didn't list specific price forecasts. "Australian and Brazilian producers will have to maintain tight shipment discipline to keep the price" about $US45, he said.
Ore with 62 per cent content delivered to Qingdao lost 5.3 per cent in September, capping the first back-to-back monthly loss since November 2015, according to Metal Bulletin. It remains 28 per cent higher in 2016 after a three-year tumble marked by rising production and persistent global oversupply.
'It's about value'
Australia's two biggest producers have slowed the pace of supply growth as a decade-long expansion nears an end. BHP Billiton, the world's largest miner, has forecast that its mines in Australia may expand annual output by as little as 3 per cent in the 12 months to June 30.
Rio Tinto group's Jean-Sebastien Jacques, who was appointed chief executive officer in July, said the following month that its iron ore strategy "is not about volume, it's about value". The world's second-biggest exporter is adding to full-year shipments at the slowest rate since 2012, while its annual output from Australia may be unchanged in 2017 as it addresses difficulties completing an autonomous train program.
Still, plenty of banks have signalled prospects of rising low-cost supply from the largest-producing nations. Shipments from Australia will expand to 934 million tonnes in 2020 from 835 million tonnes this year, while Brazilian cargoes rise to 480 million tonnes from 371 million, Citigroup said last month. The bank reiterated its outlook for ore dropping to $US45 next year and $US38 in 2018.
Bloomberg
