Global ore prices seen dropping 21%

Iron ore may tumble 21 per cent by the year-end as global supply increases, undermining a rally that pushed the price of the steel-making raw material to the highest level in 15 months, according to Bank of America Corp.

The commodity may fall to $110 a tonne by the end of the year from $140 a tonne in the first quarter, the bank said in a report dated yesterday. Ore with 62 per cent iron content delivered to the Chinese port of Tianjin rose 0.6 per cent to $145.90 a dry tonne yesterday, according to data from The Steel Index Ltd.

Bank of America’s outlook tallies with forecasts this month from Deutsche Bank AG and JP Morgan Chase & Co that prices are poised to retreat in the second half as supply increases.

Iron ore has surged 68 per cent since slumping to a three-year low in September as China, the world’s biggest buyer, accelerated for the first time in two years and mills rebuilt inventories. “The recent price rally is unsustainable and should come off in the second half of the year as more supply begins to come on line,” Bank of America said. Prices will “remain supported over the winter due to seasonal factors,” it said.

China’s coldest winter in 28 years curbed its domestic production of iron ore, according to a January 10 report from Credit Suisse Group AG. Imports rose to a record 70.94 million tonnes last month, customs data show. The world’s second-largest economy buys about 65 per cent of seaborne trade.

New Supply
Deutsche Bank said on January 8 that prices will drop below $120 in the second half from about $170 in the first six months, predicting that the theme of 2013 may be “a tale of two halves.” Prices will drop from an average $145 a tonne in the first quarter to $120 a tonne in the fourth quarter as new supply comes on stream, JPMorgan Chase said on January 16. Global seaborne supply may gain 7 per cent in 2013 from a year earlier, according to Deutsche Bank, which said Australian shipments may climb 14 per cent. Rio Tinto Group, the second- largest mining company, said on January 15 its expansion in the Pilbara to 290 million tonnes by the year-end is on track, with output set to rise to 360 million tonnes by the first half of 2015.

China’s economic growth accelerated in the final quarter of 2012, data showed on January 18, as government efforts to revive demand drove a rebound in industrial output and retail sales. Gross domestic product expanded 7.9 per cent in the three months.

‘Exceptional prices’
Goldman Sachs Group Inc is more bullish on iron ore, predicting another year of “exceptional prices,” according to a January 16 report that increased its full-year forecast to $144 a tonne from $140. While the global market is set for oversupply, that’s two years away, Goldman said. Ore in Tianjin rallied to $158.50 on January 8, the most expensive since October 2011. Last year, the price advanced 4.6 per cent after slumping 19 per cent the previous year. Inventories held at Chinese ports fell 4.4 per cent to 69.71 million tonnes on January 18, the lowest level since September 2010, according to data from Beijing Antaike Information Development Co. The holdings dropped 24 per cent in the final quarter of 2012, the biggest decline since at least the third quarter of 2006. Iron ore is measured in dry tonnes, or metric tonnes less moisture. At Tianjin port moisture can account for 8 per cent to 10 per cent of the ore’s weight. Australia and Brazil are the two biggest exporters and accounted for about 73 per cent of world seaborne supply in 2012, according to Credit Suisse.