Bloomberg
IRON ore prices will extend declines as growth in low-cost supply from the world’s largest producers outstrips demand, according to JPMorgan Chase, which have cut forecasts through 2017.
News of this report knocked mining companies on the JSE with interests in iron ore mining.
BHP Billiton, one of the world’s largest iron miners, saw its shares fall R6.51 to R253.58, Anglo American, which has iron ore mines in South Africa and Brazil, dropped R4.81 to R219 and Kumba Resources, which has iron mines in South Africa, declined R7.79 to R242.74.
Assore and African Rainbow Minerals (ARM) both have local iron ore mines. Assore lost R5.86 to R149.61 and ARM fell R2.30 to R116.50.
JPMorgan Chase forecast that the steel-making raw material would average $67 a ton next year, 24 percent less than previously forecast, and $65 in 2016, down 23 percent.
So far this year, it’s averaged $98.95 a ton, according to data from Metal Bulletin. In 2017, prices would average $69 a ton, 16 percent less, the bank said.
Iron ore is heading for the biggest annual loss in at least five years as Rio Tinto Group, BHP Billiton and Vale SA expanded output, spurring a glut just as growth slowed in China.
The larger miners are choosing to overproduce, driving prices lower and forcing the closure of higher-cost suppliers, according to Bank of America Merrill Lynch.
The raw material may drop to less than $60 next year, Citigroup estimates.
“The only way the oversupply can be averted is if the low- cost producers cut back on their growth targets,” JPMorgan said in the report, dated December 7.
“This is unlikely: feedback from recent site visits to the Pilbara suggests there is currently no consideration for slowing capacity growth from either Rio Tinto or BHP Billiton.”
Ore with 62 percent content delivered to Qingdao, China, lost 2.7 percent to $69.80 a dry ton yesterday, the biggest drop in about three weeks, according to data from Metal Bulletin.
Prices slumped to $68.49 on November 26, the lowest level in more than five years, and lost 48 percent this year.
In London, BHP lost as much as 3.3 percent to 1 390p, the lowest level in London since July 2009, and closed 1.6 percent lower at 1 413.5p.
The world’s biggest mining company, which also produces oil, is 25 percent lower this year as iron ore and crude fell.
Rio stock retreated as much as 3.2 percent in London, dropping for a fourth straight day.
Global seaborne output will exceed demand by 100 million tons this year from 16 million tons in 2013, according to HSBC Holdings.
The price will average $99 this year and $85 in 2015, the bank predicts.
“The majors have embarked on a ‘shakeout’ in the iron ore market with a view to regaining market share,” Bank of America Merrill Lynch said in a report on December 3.
The price will average $70 next year and $65 in 2016, it said, cutting forecasts.
No slowdown
BHP signalled that there would not be a slowdown in the drive by global 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 November 30.
Prices will return to an average $85 to $90 next year as high-cost mines shut and Asian demand rises, Vale chief executive Murilo Ferreira said last month.
Australia’s Roy Hill Holdings, developing a mine in the Pilbara, aims to be “one of the last people standing” as higher-cost suppliers close, chief executive Barry Fitzgerald said on November 20.