Global iron ore glut threatens China's miners | South China Morning Post
  • Thu
  • Jan 29, 2015
  • Updated: 12:51pm
BusinessCommodities
METALS

Global iron ore glut threatens China's miners

PUBLISHED : Thursday, 08 May, 2014, 1:15am
UPDATED : Thursday, 08 May, 2014, 1:15am

Mainland iron ore miners face a rising challenge from increased overseas supplies of raw material for steel and some higher-cost capacity will probably be forced to close, according to BHP Billiton.

The gain in global production is being led by Australia and Brazil and their new, low-cost output will displace marginal suppliers in China, Michiel Hovers, vice-president of iron ore marketing at BHP, said at an industry conference yesterday. Vale, the world's biggest producer, plans to raise output by almost 50 per cent by 2018, said its global marketing and sales director, Claudio Alves.

The biggest producers, including Vale, BHP, Rio Tinto and Fortescue Metals, have invested billions of dollars to expand output, betting on sustained growth in demand from China, the biggest buyer. Iron ore fell into a bear market in March amid forecasts for a global glut.

"Seaborne supply growth will come largely from Australia and Brazil," Hovers said. "This new supply will be low-cost seaborne and displace marginal supply from high-cost domestic Chinese producers and other lower-quality iron ore imports into China."

Ore with 62 per cent content delivered to Tianjin has lost 21 per cent this year to US$106 a dry tonne, according to data from The Steel Index. The benchmark price fell to US$104.70 on March 10, the lowest level since October 2012. Prices may decline to US$95 in the fourth quarter, according to CLSA.

If prices drop to US$100, supplies in China may be hurt as mainland mines with high production costs are forced to cut output or close, according to Australia's Bureau of Resources and Energy Economics. By comparison, Rio Tinto can be profitable above US$36 and BHP's break-even is US$38, UBS estimated.

Global seaborne supplies will increase by 114 million tonnes to 1.25 billion tonnes this year, Morgan Stanley estimated in a report. That would increase the worldwide surplus to 71 million tonnes this year from 900,000 tonnes last year, the bank forecast.

"What's happening now is the major iron ore producers are bringing considerable new capacity," Alves said, citing a rise of about 108 million tonnes this year and 90 million next year. "Most of the tonnage is very competitive."

He said it would take time to absorb that pickup in iron ore supply, forecasting that China's imports will rise to more than 816 million tonnes this year from about 743 million tonnes last year. "It will make some pressure in terms of price, create some volatility," Alves said.

Share

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

 
 
 
 
 

Login

SCMP.com Account

or