'No surge in sight for international iron ore prices'

Analysts at an industry conference see the commodity heading lower or remaining at present levels, despite recent bounce

PUBLISHED : Tuesday, 06 November, 2012, 12:00am
UPDATED : Tuesday, 06 November, 2012, 4:24am


International iron ore prices will at best be steady and likely move lower next year despite a sharp rebound in the past two months, according to industry executives and analysts.

"I believe next year's prices will be lower, as to what degree, it will depend on how bad next year's global economy will be," China Metallurgical Industry Planning and Research Institute president Li Xinchuang told an iron ore panel discussion of the China Mining Congress.

Li said that if the trade protectionist measures by Western developed nations against mainland exporters were sustained, they could worsen the global economic slowdown next year.

Growth on the mainland, the world's biggest consumer of steel and iron ore, would be sustained by pro-growth policies of the new leadership, which would be installed in March, he added.

China imports about 60 per cent of its iron ore needs.

John Johnson, chief executive of London-based metals sector market researcher and consultancy CRU, is more optimistic. Given global and China's iron ore demand growth has slowed in recent years, he expects supply to play a bigger role in determining prices.

"The issue is whether the huge supply that was supposed to come to the market in the next five years will be realised and when," he said.

"I think prices will be reasonably steady, as I expect demand to be a bit higher than last year given we expect the global economy will be better."

Johnson said CRU forecasted next year's prices to average US$129 a tonne, adding there were significant risks if global economic growth did not pick up.

A Reuters poll of 12 analysts late last month expect iron ore to average US$120 a tonne next year, down from US$126 this year following weak mainland steel demand. They projected prices to further decline to US$119 in 2014 and US$115 in 2015.

The analysts expect mainland crude steel demand growth to ease to 3.5 per cent this year, and to remain weak with growth of just 2.6 per cent in 2015, a far cry from 8.9 per cent last year and the 15 per cent or more in 2001 to 2008.

International iron ore prices sank one-third to a three-year low of US$89 a tonne early in September before rebounding to around US$120 today.

The notoriously volatile commodity, of which China is the biggest buyer and Australia and Brazil are the biggest suppliers to the seaborne market fetched as much as US$190 a tonne last year.

The sharp price fall earlier this year saw Australian mining giant BHP Billiton August shelve its A$20 billion (HK$160 billion) port expansion plan in West Australia that will cap its future ore export growth.

Rival Fortescue Metals also scaled back its plan last month to almost triple its annual output from 55 million tones. It now just plans to double output by the end of next year. Brazil's iron ore giant, Vale, also put on hold its US$5 billion Simandou project in Guinea in West Africa.

Despite weaker mainland demand, Luo Yongjun, vice-general manager of Sinosteel Mining, said the firm, which has mining investments in Australia and Africa, would continue to look for investment opportunities abroad.

The mining arm of state-owned Sinosteel was considering joining a yet-to-be-determined partner to develop an iron ore mine in Cameroon, West Africa, he added.

Meanwhile, Liu Xiangmin, a senior vice-president at Aluminum Corporation of China (Chalco), the nation's largest producer of the metal, said it and its joint venture partner Rio Tinto had no plan to defer or cancel their more than US$4 billion Simandou iron ore project in Guinea, despite rival Vale's shelving its US$5 billion project nearby.

Liu, speaking on the sidelines of the congress, said the two projects had independent plans for logistics infrastructure, so Vale's holding back would not affect Simandou.

Chalco has a 44.65 per cent stake in the project, compared with 50.35 per cent of Rio and 5 per cent of International Finance Corporation.

The project, which will mainly supply the mainland market, aims to start production in 2015 with an annual output of 95 million tonnes.

He also said Chalco was willing to get involved in the Oyu Tolgoi copper project in Mongolia, owned by Turquoise Hill Resources. Turquoise Hill, previously know as Ivanhoe Mines, is controlled by Rio Tinto.

"If Rio Tinto and its shareholders think Chalco has added-value for them, Chalco is still willing to be involved in the project," he said