Iron Ore Slumps Below $60 as Australian Exports Set to Surge


Iron ore exports from Australia will expand 10 percent next year, more than double the gain in 2015, as a new mine backed by billionaire Gina Rinehart ramps up supply, according to the government, which cut price forecasts.

Shipments will increase to 824 million metric tons from 748 million tons in 2015, when exports were seen rising 4.3 percent on-year, the Department of Industry and Science said in a quarterly outlook on Tuesday. Iron ore will average $54 a ton this year from about $60 forecast in March, the department said. Prices will average $52 in 2016 from $57 estimated in March.

Increased exports from the biggest supplier may hurt the outlook for prices, which on Tuesday capped the first quarterly rise since the final three months of 2013. The Rinehart-backed Roy Hill mine in the ore-rich Pilbara plans to deliver its inaugural cargoes at about the end of September, adding to increased output from Rio Tinto Group and BHP Billiton Ltd. Goldman Sachs Group Inc. and JPMorgan Chase & Co are among banks predicting that iron ore’s recent rally won’t last.

“Supply is expected to grow in Australia as Roy Hill comes into production and Rio and BHP further debottleneck their operations,” Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., said by e-mail. “This is likely to continue to weigh on iron ore prices.”

Quarterly Gain

Ore with 62 percent content delivered to Qingdao, which bottomed at $47.08 a dry ton on April 2, tumbled 3.2 percent to $59.35 on Tuesday, according to Metal Bulletin Ltd. That’s the lowest level since May 21. The benchmark jumped 16 percent this quarter after a 28 percent loss between January and March. The department’s price forecasts refer to spot ore with 62 percent content free-on-board Australia.

Global trade in ore will climb to 1.42 billion tons in 2016 from 1.37 billion tons this year, according to the report. Brazil’s exports are set to jump to 412 million tons next year from 390 million tons in 2015, it said. Australia and Brazil’s combined share will account for 87 percent of worldwide seaborne trade next year, up from 83 percent in 2015, it said.

Roy Hill, Australia’s largest single iron ore mine, will add 55 million tons of output a year when running at full capacity. Rinehart said in April that while iron ore could be low for some time, prices wouldn’t stay down forever.

Slowing steel production in China is also driving iron prices lower, the report said, adding the country’s output will contract this year and next. Domestic consumption has been hurt this year by the lackluster performance in residential construction, while low capacity utilization and tighter environmental standards have also curbed output, it said.

“A period of subdued prices is unlikely to significantly impact the major Pilbara producers, including Roy Hill,” the report said. “The Pilbara producers are expected to continue improving productivity and cutting costs.”

Rio Tinto shares fell 0.4 percent to 2,680.50 pence in London on Tuesday, heading for a four-day drop, while BHP slid 1.4 percent. In Brazil, Vale SA has declined 15.5 percent this year.

Source from : Bloomberg