Record Iron Ore Glut Seen by ANZ as Price Forecasts Cut 30%

By Phoebe Sedgman and Jasmine Ng

(Bloomberg) — The international iron ore surplus will greater than double to a report this yr as low-cost producers carry on increasing, in keeping with Australia & New Zealand Banking Group Ltd., which bargain forecasts as a lot as 30 %.

The uncooked materials will common $58 a metric ton this yr, down from an earlier estimate of $77, and $60 subsequent yr, from $85, analysts together with Head of Commodity Research Mark Pervan wrote in a report on Wednesday. The surplus will broaden to 85 million tons this yr from 39 million tons in 2014, the financial institution mentioned. Price forecasts for 2017 and 2018 have been additionally decreased.

The uncooked materials collapsed in 2014 and prolonged losses this yr as rising output from Rio Tinto Group and BHP Billiton Ltd. spurred a glut simply as development in China slowed. While the droop was sooner than anticipated, an estimated 85 % of seaborne suppliers are nonetheless earning money, in keeping with ANZ, which joined Goldman Sachs Group Inc., UBS Group AG and Citigroup Inc. in reducing worth estimates within the opening weeks of 2015.

“The market has been hit by the perfect storm of substantial, new iron supply entering the market in a weakened demand environment,” Pervan wrote. “Large, low-cost expansions are still coming, suggesting key industry players are prepared to accept a lower floor price.”

Ore with 62 % content material at Qingdao, China, rose 1.9 % to $62.38 a dry ton on Tuesday, in keeping with information compiled by Metal Bulletin. The worth fell on Monday to $61.20, the bottom on report relationship again to May 2009. Iron ore fell 47 % in 2014, dropping for 4 straight quarters.

Lower Costs

Prices “will slide to the mid-$50 a ton range for most of 2015, while declining costs lower or sustain profitability for most of the industry,” Pervan wrote, citing weaker oil costs and falling currencies. The glut will swell to a report in 2015 and stay close to that degree for the following two years, he mentioned.

While metal consumption in China will shrink 1.3 % to 728 million tons this yr, hurting iron ore costs, peak metal within the nation gained’t come till 2020, in keeping with Pervan. China has the world’s largest metal business, accounting for about half of worldwide provide, and is the most important purchaser of seaborne ore.

There’s engaging long-term demand for iron ore, pushed primarily by China, Alan Smith, Rio’s Asia president for iron ore, advised a convention in Beijing final week. China’s crude-steel output will broaden to 1 billion tons by 2030, Smith mentioned.

Goldman and UBS each lower their forecasts for iron ore costs to $66 a ton this yr, whereas Citigroup decreased its to $58. Andy Xie, a Shanghai-based unbiased economist and former Asia-Pacific chief economist at Morgan Stanley, mentioned it is going to common about $50 in 2015, dropping into the $30s.

Global seaborne provides will broaden 6.3 % to 1.42 billion tons in 2015, beating demand development of 4 % to 1.39 billion tons, UBS mentioned Jan. 15. Among tasks opening this yr is the Roy Hill mine backed by Gina Rinehart, the Asia-Pacific’s richest girl. The mine in Australia’s ore-rich Pilbara area could have capability of 55 million tons a yr and is scheduled to begin shipments by about September.

Copyright 2015 Bloomberg.