Iron ore prices are unlikely to rise over the next three months due to high port inventories in top consumer China and increased supplies of the steelmaking raw material, the country’s economic watchdog said on Wednesday.
Spot iron ore prices have already dropped 27 percent this year to a 20-month low below $100 a tonne as global miners stick to their expansion plans at a time when China’s steel demand has been hit by slower economic growth.
“As some big miners are running new capacity, iron ore delivery would grow steadily over the next two to three months, while port inventories will continue standing at high levels and steel demand growth is slowing, so iron ore prices will find it difficult to rise,” the National Development and Reform Commission (NDRC) said in an article published on its website.
NDRC expects global iron ore capacity, excluding China, to rise by 130 million tonnes this year and China’s iron ore demand growth to decline to an annual rate of 3 percent to 4 percent.
China imported a total of 819 million tonnes of iron ore in 2013, up 10.2 percent from a year ago.
A rapid rise in supplies and weak prices have further boosted China’s iron ore imports this year, with arrivals climbing 21 percent from a year ago to 305.3 million tonnes in the first four months of 2014.
Inventories at main ports of the country, which accounts for 60 percent of global iron ore demand, stood at a record high of 113.3 million tonnes last week. SH-TOT-IRONINV
Lower prices for imported iron ore will weigh on high-cost domestic producers of the steelmaking ingredient, NDRC said in the website report. The average global iron ore production cost was $54.7 a tonne last year while Chinese production cost reached $75 to $145 a tonne, it added.
China’s steel sector, however, stands to benefit from weak iron ore prices. Long critical of the way their biggest import commodity by volume is priced, China last year accused the world’s top three miners and some traders of manipulating the market to push prices higher.
Brazil’s Vale, the world’s top iron ore producer, is set to increase annual output to around 450 million tonnes by 2018, from 306 million tonnes last year, while No.3 BHP Billiton will lift its annual capacity to up to 270 million tonnes from a forecast 217 million tonnes this year.
Australia exported 165.2 million tonnes of iron ore to China in the first four months of 2014, up 35 percent from a year ago, and Brazil, the second-largest exporter of the commodity, increased its shipment to China by 10 percent to 55.7 million tonnes over the same period.