By Phoebe Sedgman
(Bloomberg) — 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 $63 a metric ton, the Department of Industry said today. That compares with $94 a ton forecast in September by the Bureau of Resources and Energy Economics, which is now part of the department. The commodity is set to average about $88 this year, today’s quarterly report says.
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 $60 next year as increasing output widens a glut just as demand growth falters in China, Roubini Global Economics LLC says. Australia this month predicted the commodity will trade at about $60 over the next two years.
“The current market oversupply is expected to prevail through the start of 2015 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.”
Record Exports
The department’s projections refer to spot ore with 62 percent content free-on-board Australia. Shipments from Australia will reach a record 766 million tons in 2015 from 768 million tons forecast in September and 718 million tons this year, it said. China’s total imports will rise to 973 million tons next year from 938 million tons this year, it said.
Ore with 62 percent content delivered to Qingdao, China, added 1.1 percent to $69.17 a dry metric ton on Dec. 19, data compiled by Metal Bulletin Ltd. show. Prices slumped to $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. The average new-home price in 100 cities tracked by SouFun Holdings Ltd. fell 0.4 percent last month from October, the seventh consecutive decline, according to China’s biggest real estate website owner.
The department previously estimated iron ore in 2015 at about $97 a ton in June and $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 ($143 billion) in the year ending June 30, from a previous forecast of A$192.4 billion, the department said today.
Supply Surge
Iron ore will average $67 a ton next year, 24 percent less than previously forecast, JPMorgan Chase & Co. said in an e- mailed report received Dec. 9. Low-cost producers are unlikely to curb supplies, the bank said. Morgan Stanley estimates the raw material will average $79 a ton in 2015, while Citigroup Inc. says it may drop to less than $60.
BHP has signaled there won’t be a slowdown in the drive by producers to boost output. If the higher “volume doesn’t come from our business, it’s going to come from other businesses,” Jimmy Wilson, BHP’s president of iron ore, said in an interview broadcast by Australia’s Nine Network on Nov. 30.
An additional 341 million tons of capacity will be added over the next five years by Rio, Brazil’s Vale SA, BHP, Fortescue Metals Group Ltd. and Hancock Prospecting Pty’s Roy Hill Holdings, according to JPMorgan. – BLOOMBERG
