Volatility to rule iron ore market for years given changes in steel industry in China: industry official

PUBLISHED : Tuesday, 04 July, 2017, 7:57am
UPDATED : Tuesday, 04 July, 2017, 8:01am

Iron ore markets are heading for a very bumpy ride in the next couple of years, marked by significant price swings amid the restructuring of the steel industry in China, according to the developer of a planned US$3.7 billion mine in Australia.

“Extreme volatility is going to be a hallmark of the market for at least a year or two,” said Andrew Stocks, managing director of Iron Road Ltd., whose partner in the mine, port and rail project is China Railway Group Ltd, the world’s second-largest infrastructure builder. “We shouldn’t be afraid of that, that is just the way it is.”

Iron ore has swung from a bear to bull market all within three months, rebounding from a year low of US$53.36 a tonne last month on a surge driven by mills in China boosting purchases to replenish inventories, with higher-grade ore in demand. This volatility is the result of the Chinese market transitioning to a cleaner, leaner production phase, according to Stocks, who sees prices averaging about US$70 a tonne over the longer term.

“You have got a fair bit of iron ore around the world,” he said. This oversupply has led to record stockpiles sitting at ports and mills that may take a year to recede to a reasonable level, he said.

BHP Billiton Ltd. last week said it sees a smoothing out of the recent volatility. The addition of low-cost supply coming from rivals including Vale SA’s S11D project will see less short, sharp shocks in the price, it said. Goldman Sachs Group says the price is heading lower and Citigroup forecasts a slump back to the US$40s.

Iron Road is in talks with China Development Bank, Industrial and Commercial Bank of China Ltd and China Construction Bank Corp about providing up to US$3 billion in financing for the project that will produce about 20 million tonnes a year of iron concentrate, a higher grade product, for at least 25 years. A decision may be made within six to nine months, Stocks said.