Record Production make iron ore prices cool

MELBOURNE: The world is mining more iron ore than steelmakers need. Australia, the largest supplier, sent 504 ships from Port Hedland during the first quarter carrying enough iron-ore exports to build more than 700 Golden Gate Bridges. Shipments jumped 35% to the biggest buyer, China, where inventories have ballooned to the highest ever. After companies including BHP Billiton and Rio Tinto Group expanded capacity to meet surging steel demand, output is climbing just as China’s economy slows to the weakest since 1990.

Prices that already are down 15% in the past year will slump at least 16% further in the second half to less than $100 a tonne, the lowest level since 2012, according to Credit Suisse Group and Standard Chartered. “Supply growth will overtake demand growth this year for the first time in a long time,” said Christian Lelong, a Sydneybased commodity analyst with Goldman Sachs Group, which predicts prices to average $108 this year and slide to $80 in 2015.

“You will start to see some signs of surplus probably during the course of the second quarter.” Shipments from Port Hedland, about 1,300 kilometres north of Perth, surged 35% to a record 90.4 million tonne in the first three months, the port authority says.

Exports to China accounted for 79% of the total, including 27 million tonne in March, the most ever. During the quarter, the total of 504 departing ore carriers was up 30% from a year earlier and included 42 ships that hauled at least 230,000 tonne each, up from 11, the port says. It takes about 1.6 tonne of ore to produce 1 tonne of steel, which is used in cars, appliances and building materials, according to the Organisation for Economic Cooperation and Development.

The price of ore with 62% iron content delivered to the port of Tianjin in China is down 11% this year at $119.10 a dry tonne, after plunging into a bear market and falling to a 17-month low of $104.70 on March 10. The Standard & Poor’s GSCI Spot Index of 24 commodities advanced 3.3% since the end of December, while the MSCI All-Country World index of equities rose 1.2%. The Bloomberg Treasury Bond Index added 2%. Australia will ship 687 million tonne of iron ore this year, 19% more than last year, the Bureau of Resources and Energy Economics estimates. More than 70% is shipped to China, according to the Australian government . In the second half of 2014, the global surplus of seaborne ore may reach 64 million tonne.