Average iron ore price to hit record low in 2015 as supply soars

[SINGAPORE] A deepening iron ore glut and worries over a sharper economic slowdown in top buyer China will drive the average 2015 price for the steelmaking ingredient to a record low, a Reuters poll showed.

With a handful of large, low-cost miners bent on maximising output to push out smaller rivals, analysts said global iron ore supply is likely to grow by at least 100 million tonnes this year to around 1.4 billion tonnes, piling more pressure on spot prices that nearly halved in 2014.

Benchmark 62-per cent grade iron ore will average US$68 a tonne this year, sharply down from US$97 in 2014 and a previous low of US$86 in 2009, based on the median estimate in a poll of 13 analysts. They forecast a further slip to US$65 in 2016.

The spot price touched US$62.80 on Tuesday, just above a record low of US$59.10 plumbed in March 2009 in data The Steel Index began compiling in late 2008.

"The majors are too determined to expand market share which inevitably leads to lower for longer prices," said Carsten Menke, commodity analyst at Julius Baer in Zurich.

Brazil's Vale, along with Australia's Rio Tinto , BHP Billiton and Fortescue Metals Group are banking on their low-cost production meaning they can still profit as prices fall, boosting their market share at the expense of less-efficient producers.

And analysts said that any reduction in supply as smaller miners shut capacity would offer little support to prices that have been in a downward spiral since falling below US$100 a tonne in May last year.

Citigroup said spot prices could plunge as far as US$53 in the third quarter of the year.

Soaring supply comes as the pace of economic growth falters in China. The country's crude steel consumption last year shrank for the first time since 1981, pushing producers to sell more overseas.

But its steel exports, which hit a record of nearly 94 million tonnes in 2014, are unlikely to see another banner year after Beijing scrapped duty rebates for boron-added steel shipments from the start of 2015.

Standard Bank analyst Melinda Moore said that could cut Chinese iron ore demand by 40-50 million tonnes.

"As a result of this recent policy shift and ongoing ore consumption efficiency gains, we now forecast relatively flat to weaker demand for iron ore in China across 2015," she said.

Meanwhile, Rio and BHP boosted iron ore production sharply in the past quarter and are showing no signs of curbing output even as the slump in prices of their top earner has forced them to slash spending in other businesses.

"These producers will be reluctant to cut output and it will probably be balance sheet strength rather than cost curve position that ultimately decides who lives and who dies," Macquarie said in a report this month.

REUTERS