Global iron ore prices to tumble to $ 50 by December

Prices can crash to $ 44 by end of 2016 because of oversupply

Global prices of iron ore fines (63% Fe grade) are likely to fall further to the level of $ 50 per tonne down from the current price point of $ 52 a tonne by December this year as big miners like Rio Tinto and BHP Billiton look to ramp up capacity, offsetting any production loss triggered by shutdown of small and mid sized mines.

Weighed on by global oversupply, iron ore fines prices would be under strain and are projected to tumble to $44 a tonne by June 2016.

"Towards the end of December 2015, we predict the price benchmark of 62 per cent iron ore fines in the international market to hover around $50 per tonne- CFR (cost & freight) China. It may be noted that Goldman Sachs has predicted it around $49-50 per tonne. The prices of South Africa Kumba lumps is expected to hover around $61-62 a tonne CFR west coast of India by end of December 2015", said Manish Kharbanda, executive director and group head (mines & minerals), Jindal Steel & Power Ltd (JSPL).

Kharbanda feels the global prices of iron ore have not bottomed out yet and the downtrend is set to continue considering the kind of supply additions by Vale, Rio Tinto and BHP coupled with Ginarineheart's Roy Hill project coming into stream. While both Vale and Rio Tinto would add up to seven million tonne (mt) in output each in 2015, BHP's iron ore production is tipped to expand by 14 mt. Roy Hill is expected to pump in around 55 mt this year.

"The iron ore market has now shifted to the big miners of the world who control around 70 per cent of sea borne supply with a very competitive cost structure. Once, the major miners control the market, the fall in prices tend to become cyclical", said an industry source.

Fragile demand in China would also exert pressure on iron ore prices. Chinese sea borne iron ore demand is expected to drop from 932.5 mt in 2014-15 to 907 mt in FY 16.

Pukhraj Sethiya associate director- energy (coal & mining), PricewaterhouseCoopers (PwC) said, "Iron ore prices in the past one year has seen substantial decline, reducing by over 50 per cent. Given the current market scenario with sluggish demand, the prices are not expected to pick up and may remain at low levels."

However, the falling global prices is unlikely to precipitate a similar plunge in prices of iron ore in the domestic market, especially Odisha, the largest ore producer. Iron ore prices in the state have shown a reverse trend with merchant miners hiking cost of iron ore fines by Rs 200 a tonne recently.

"Till the time global prices fall below $35 per tonne, imports may not be feasible in view of the present exchange rate and more importantly the logistic cost involved for the hinterland plants. However, considering the present trend of semi-finished steel prices and increased supply from the merchant miners to meet their respective EC (environment clearance) limits, the iron ore prices will eventually come down again in the next two to three months. Once the rationalization of the rate of royalty takes effect and freight rates at the ground is corrected with the enforcement of modified uniform ceiling rate (of transportation of minerals), we are hopeful that the iron ore prices will be further corrected to be reduced by Rs 400 per tonne", Kharbanda said.