Homepage
PR Newswire
23-05-2014, 11:43 PM
Analysts take bleak view on iron ore
SARAH-JANE TASKER THE AUSTRALIAN MAY 24, 2014 12:00AM
IRON ore — Australia’s No 1 export earner — hit two-year price lows this week, sending shivers through the sector that a new slump in the price of the steelmaking commodity has begun.
The price continues to hover below $US100 a tonne and, while the main producers are better prepared than the last time it fell to this point (just under two years ago), revenues will be hit.
Bearish China sentiment and poor fundamentals have again been the driver of the price drop, plus new supply is being poured into the market at record rates.
Credit Suisse says there are few positives to draw from China’s ferrous sector at present, adding that the key question now is to what extent the negatives are already reflected in the price.
The investment bank said it believed that prices could display some stability in the near term, or even manage modest gains, but that the second half of this year should deliver a new low below 2012’s trough of $US87 a tonne.
The bank’s commodities team said the potential of a tug boat strike at Port Hedland that would affect exports for BHP Billiton and Fortescue Metals could lead some Chinese steel mills to take advantage of low raw material prices and trigger covering of some short financial positions.
“If this plays out, prices should temporarily arrest their recent declines and stabilise around $US100 a tonne, possibly even a little higher,” Marcus Garvey said in his latest note. “We doubt though that prices will stage any kind of more sustained rally.”
Mr Garvey added that absent a prolonged strike at Port Hedland, seaborne cargoes should be abundantly available.
Port stocks of 115 million tonnes offered a considerable buffer from which mills could draw down fresh tonnage, he said. “Policy loosening should help demand to stabilise but a bounce is unlikely,” he said. “With no organic catalyst likely to improve market conditions, we expect iron ore prices to resume their softening in the second half.”
Benchmark iron ore prices slipped as low as $US97.50 a tonne this week, which followed Treasury forecasts outlined in the federal budget that the price would fall below $US90 a tonne within two years.
Glencore Xstrata chief executive Ivan Glasenberg blamed the world’s largest producers for pushing the price lower.
“Prices are coming off because we see massive expansions coming from our major competitors,” Mr Glasenberg said this week.
“They continue to expand these brownfields and put more supply into the market.”
BHP’s iron ore president, Jimmy Wilson, outlined that the market had always been a story of supply and demand.
“Supply has increased, and if we look back this year versus last year, demand has increased by 60 million tonnes per annum but at the same time supply has increased by 120 million tonnes per annum,” Mr Wilson said.
Standard Bank is not as bearish as others on the iron ore market. It highlighted yesterday that it saw the potential for a rally in iron ore prices back towards $US105 a tonne, as the current steel destock begins to clear and as loss-making miners continue to turn off output, both in China and elsewhere.
The price regained some ground through the week on the back of stronger-than-expected data out of China. But analysts have warned that the sharp rebound in the iron ore price experienced after the last slump below $US100 a tonne is unlikely to occur this time given the ramp-up in supply from all of the major producers.
SARAH-JANE TASKER THE AUSTRALIAN MAY 24, 2014 12:00AM
IRON ore — Australia’s No 1 export earner — hit two-year price lows this week, sending shivers through the sector that a new slump in the price of the steelmaking commodity has begun.
The price continues to hover below $US100 a tonne and, while the main producers are better prepared than the last time it fell to this point (just under two years ago), revenues will be hit.
Bearish China sentiment and poor fundamentals have again been the driver of the price drop, plus new supply is being poured into the market at record rates.
Credit Suisse says there are few positives to draw from China’s ferrous sector at present, adding that the key question now is to what extent the negatives are already reflected in the price.
The investment bank said it believed that prices could display some stability in the near term, or even manage modest gains, but that the second half of this year should deliver a new low below 2012’s trough of $US87 a tonne.
The bank’s commodities team said the potential of a tug boat strike at Port Hedland that would affect exports for BHP Billiton and Fortescue Metals could lead some Chinese steel mills to take advantage of low raw material prices and trigger covering of some short financial positions.
“If this plays out, prices should temporarily arrest their recent declines and stabilise around $US100 a tonne, possibly even a little higher,” Marcus Garvey said in his latest note. “We doubt though that prices will stage any kind of more sustained rally.”
Mr Garvey added that absent a prolonged strike at Port Hedland, seaborne cargoes should be abundantly available.
Port stocks of 115 million tonnes offered a considerable buffer from which mills could draw down fresh tonnage, he said. “Policy loosening should help demand to stabilise but a bounce is unlikely,” he said. “With no organic catalyst likely to improve market conditions, we expect iron ore prices to resume their softening in the second half.”
Benchmark iron ore prices slipped as low as $US97.50 a tonne this week, which followed Treasury forecasts outlined in the federal budget that the price would fall below $US90 a tonne within two years.
Glencore Xstrata chief executive Ivan Glasenberg blamed the world’s largest producers for pushing the price lower.
“Prices are coming off because we see massive expansions coming from our major competitors,” Mr Glasenberg said this week.
“They continue to expand these brownfields and put more supply into the market.”
BHP’s iron ore president, Jimmy Wilson, outlined that the market had always been a story of supply and demand.
“Supply has increased, and if we look back this year versus last year, demand has increased by 60 million tonnes per annum but at the same time supply has increased by 120 million tonnes per annum,” Mr Wilson said.
Standard Bank is not as bearish as others on the iron ore market. It highlighted yesterday that it saw the potential for a rally in iron ore prices back towards $US105 a tonne, as the current steel destock begins to clear and as loss-making miners continue to turn off output, both in China and elsewhere.
The price regained some ground through the week on the back of stronger-than-expected data out of China. But analysts have warned that the sharp rebound in the iron ore price experienced after the last slump below $US100 a tonne is unlikely to occur this time given the ramp-up in supply from all of the major producers.