Iron ore prices to fall to around $US50

Haulage truck at the Rio Tinto West Angelas iron ore mine in the Pilbara region of West Australia Wednesday, July 9, 2014.  (AAP Image/Alan Porritt) NO ARCHIVING

Kim Christian
(Australian Associated Press)

Iron ore prices are tipped to fall to around $US50 a tonne in the second half of the year because of weak steel demand and increased supply from Australia’s big miners.

The steel-making commodity has fallen two per cent since last week to $US60 a tonne, but prices are still up almost 40 per cent since the beginning of April.

The price of Australia’s biggest export earner recently hit a five month high of $US65 a tonne which has been attributed to supply disruptions and stronger seasonal demand in China.

Chinese iron ore port inventories have fallen this year but ANZ researchers believe the trend will reverse soon and lead to lower prices.

ANZ predicts the price will fall to $US53 over the next three months and stay below $US60 a tonne next year.

“We’re still seeing supply growth coming through in the market,” ANZ senior commodity strategist Daniel Hynes told AAP.

“Roy Hill’s coming through and BHP and Rio have still got incremental gains from their expansions and Vale in Brazil has some expansions coming thorough so the supply side is still seeing growth and this against a backdrop of relatively weak demand.”

Mr Hynes does not expect to see an infrastructure-led recovery in China which has boosted iron ore prices in the past.

House prices in China have recently been stabilising but construction activity has remained muted, meaning demand is expected to remain weak, he said.

Investment Bank Citi forecasts the iron ore price will fall to $US48 a tonne in the third quarter and as low as $US38 in the fourth quarter.

Despite making slight upward revisions for its third quarter prices, Citi says it remains bearish on iron ore largely because of supply coming from Australia’s biggest mining companies.

“The key driver of this price decline is the continued acceleration in low-cost supply from Australia as Rio Tinto completes the expansion to 360 million tonnes per annum and Roy Hill is commissioned in late-2015,” Citi says.


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