Iron ore sank to the lowest level since 2009 as supply exceeds demand and China, the biggest user, contends with its weakest expansion in almost a quarter century.
Ore with 62% content delivered to Qingdao, China, retreated 1.8% to $67.90 a dry metric ton, data compiled by Metal Bulletin Ltd. showed. That’s the lowest since June 3, 2009, and extends this year’s slump to 50%.
The steel-making raw material is headed for the biggest annual loss in at least five years as BHP Billiton Ltd., Rio Tinto Group and Vale SA expanded output, betting increased production will boost revenue and force less competitive mines worldwide to close. Gripped by a property downturn and excess capacity, China is set to grow 7.4% this year, the slowest full-year expansion since 1990. Australia cut its price estimate for next year by 33% as a surplus builds.
“The falling price this year has been far deeper than anyone anticipated,” Andrew Hodge, an analyst at Wood Mackenzie Ltd. in Sydney, said before today’s prices were released. “China has had weaker than expected demand from its own residential property sector. For the big three, they have the lowest cost operations so there’s no reason to stop producing,” he said, referring to BHP, Rio and Vale.
The market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons in 2014, Goldman Sachs Group Inc. estimated in October. The bank forecasts a price of $80 next year.
Australia sees the commodity averaging $63 a ton next year compared with a $94 forecast in September, as surging output in the world’s top exporter outpaces Chinese demand growth, the Department of Industry said today. Projections refer to spot ore with 62% content free-on-board Australia. China’s total imports will rise to 973 million tons next year from 938 million tons this year, it said.
While prices are set to remain weak in 2015, they appear “oversold” and there’s potential for a relief rally in the second half of next year, Australia & New Zealand Banking Group Ltd. said in a report. Any recovery will be driven by supply cuts, including at high-cost mines in China, where almost the entire industry is loss-making at prices now, ANZ said.
New-home prices fell in fewer Chinese cities last month after the government eased property curbs and cut interest rates for the first time since 2012, boosting demand. Prices dropped in 67 of the 70 cities tracked by the government from 69 in October, the National Bureau of Statistics said Dec. 18.
Iron ore will average $67 a ton next year, 24% less than previously forecast, JPMorgan Chase & Co. said in an e-mailed report received Dec. 9. An additional 341 million tons of capacity will be added over the next five years by Rio, Vale, BHP, Fortescue Metals Group Ltd. and Hancock Prospecting Pty’s Roy Hill Holdings, according to JPMorgan.
BHP, the world’s biggest mining company, has signaled that there won’t be a slowdown in the drive by producers to boost output. If the higher “volume doesn’t come from our business, it’s going to come from other businesses,” Jimmy Wilson, BHP’s president of iron ore, said in an interview broadcast by Australia’s Nine Network Nov. 30.
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