One of China’s top five steelmakers has warned Australian miners of weaker iron ore prices in the second half of 2013, as much of China’s steel industry struggles to break even.
Ansteel chairman Zhang Xiaogang told London’s Financial Times that the average iron ore price for 2013 would be somewhere between $US110 and $US120 per tonne.
While that prediction is similar to the $US111 per tonne the commodity was fetching on Monday, the price has averaged much higher at $US140 per tonne when measured since January 1.
Mr Zhang’s comments therefore imply that price falls are ahead for the commodity, which ranks as Australia’s most lucrative export.
Advertisement
“We have to prepare for a long-term struggle,” said Mr Zhang, in reference to the profitability of the Chinese steel sector.
“Some people will collapse during this war of attrition, if their cash flow dries up, or if they can’t make any money at all.”
While Mr Zhang’s rhetoric might sound bearish, his prediction that iron ore will average between $US110 and $US120 per tonne in 2013 merely puts him in line with the forecasts made by iron ore exporters and government agencies in Australia.
At the start of 2013, Fortescue Metals Group – widely considered the most bullish player in the iron ore scene – predicted that iron ore prices would average around $US120 per tonne over the course of 2013.
Fortescue boss Nev Power did upgrade his expectations slightly in April, saying the iron ore price was ‘‘probably going to trade in that range of $US120 to $US130 a tonne for the foreseeable future’’.
But the rival predictions remain within 10 per cent of each other.
The Australian government’s Bureau of Resources and Energy Economics was also in the same ballpark as Ansteel and Fortescue, with its prediction in March that iron ore prices would average $US119 per tonne in 2013.
The iron ore market has shown seasonal trends in recent years, with the price typically reaching its annual nadir around August and September, before rising to its annual peak in the March quarter.
Despite those trends, most experts agree that the peak of iron ore prices is in the past on the back of two main factors; Chinese demand for iron ore is growing at a slower rate than in the past, while supply of iron ore is growing significantly on the back of the expansion programs being run by the likes of Fortescue, BHP Billiton and Rio Tinto.
While declining iron ore prices are a worry for Australian exporters, many of them are celebrating the 11¢ fall in the Australian dollar over the past two months.
One iron ore exporter, Arrium Limited, will be $132 million better off if the currency were to stay at Monday’s level of US94¢ for 12 months.
Meanwhile Australia’s biggest iron ore port – Port Hedland – reported that the largest ever shipment of iron ore had left its berths over the weekend bound for China.
The ‘‘PSU Seventh’’ vessell departed Port Hedland carrying 256,450 tonnes of Fortescue ore, beating its own record set in April by about 600 tonnes.