Iron ore miners braced as demand growth falters
Bloomberg reported that the world is mining more iron ore than steel makers need. Australia, the largest supplier, sent 504 ships from Port Hedland during the Q1 of the year carrying enough iron ore exports to build more than 700 Golden Gate Bridges. Shipments jumped 35% to the biggest buyer, China, where inventories have ballooned to the highest yet.
According to Credit Suisse Group and Standard Chartered, after companies including BHP Billiton and Rio Tinto expanded capacity to meet surging steel demand, output is climbing just as China’s economy slows to the weakest since 1990. Prices that already are down 14% in the past year will slump at least 16% further in the second half to less than USD 100 a metric tonne, the lowest level since 2012.
Mr Christian Lelong a Sydney based commodity analyst with Goldman Sachs said that "Supply growth will overtake demand growth this year for the first time in a long time. Goldman Sachs predicts prices to average USD 108 this year and slide to USD 80 next year. You will start to see some signs of surplus probably during the course of the Q2."
The port authority said that shipments from Port Hedland, about 1,300 kilometers north of Perth, surged 35% to a record 90.4 million tonnes in the first three months. Exports to China accounted for 79% of the total including 27 million tonnes last month, the most yet. During the quarter, the total of 504 departing ore carriers was up 30% from a year earlier and included 42 ships that hauled at least 230,000 tonnes each up from 11.
The Bureau of Resources and Energy Economics estimates said that Australia will ship 687 million tonnes of iron ore this year, 19% more than last year. More than 70% is shipped to China. In the H2 of this year, the global surplus of seaborne ore may reach 64 million tonnes, up from 14 million in the first 6 months.
Rio Tinto, the second biggest iron ore exporter, plans to boost output 11% this year to 295 million tonnes. Capacity is almost tripling to 155 million tonnes at Fortescue Metals, based in Perth, and the country’s third biggest producer. Melbourne based BHP said its Jimblebar expansion in Western Australia was completed six months early.
China’s state council targeted CNY 150 billion of bond sales this year to build railways, mainly in the less-developed central and western regions, and said it will expand plans to speed up construction projects after slowdowns in manufacturing, retail sales and investment. China’s economy grew sevenfold since 2000, boosting demand for the raw material used to build skyscrapers and railways.
Mr Murilo Ferreira the CEO of Vale the largest iron ore producer in Brazil, said that growth in China, the world’s second largest economy, is still more than twice the 2.7% forecast in the US a separate Bloomberg survey of economists shows. China accounted for about 72% of the iron ore imported globally last year.
Source – Bloomberg