* Prices will drop 3% in 2016 before rebounding through 2020
* Australian exports may slow as majors reach maximum capacity
The world’s biggest iron-ore exporter called the bottom of the market, forecasting a steady rise in prices through 2020 after a decline next year.
Prices will average $60 in 2017 and climb every year through 2020 to $75 as demand growth accelerates and supply increases slow, the Department of Industry & Science said in a quarterly outlook on Wednesday. It predicts the steel-making ingredient will average $53 this year and $51 in 2016, paring estimates by as much as 2.8 percent from June.
Iron ore, the country’s largest export earner, lost 21 percent this year as BHP Billiton Ltd. and Rio Tinto Group boosted output, betting on sustained demand growth from China even as economic expansion in the world’s biggest buyer weakened. Australia’s exports will probably expand at a slower pace over the forecast period as Gina Rinehart’s Roy Hill project in the ore-rich Pilbara is the last major mine under construction, the government said.
“Prices are projected to rebound as higher-cost producers exit the market and world steel-production growth rebounds,” the department said. “As production at Roy Hill ramps up and the major Pilbara producers reach maximum capacity over the next couple of years, growth in Australia’s output and exports is projected to slow considerably.”
Lower Prices
Price projections by the department refer to spot ore with 62 percent content free-on-board Australia. The commodity delivered to Qingdao in China fell 1.4 percent to $56.05 a dry ton on Tuesday, according to Metal Bulletin Ltd. Iron ore bottomed at $44.59 on July 8, a record low for daily price data dating back to May 2009.
Before prices rebound, they’ll drop about 3 percent next year as supplies climb and steel output in China shrinks further, according to the Australian government. The country, which makes about half of the world’s steel, will produce 810 million tons this year and 802 million tons in 2016, Australia estimates.
“China’s steel production is forecast to contract further in 2016 while an additional 42 million tons of iron ore is forecast to be delivered to the seaborne market,” the department said. “A net increase in the supply of iron ore is expected to keep downward pressure on prices in the seaborne market in the short term.”
The government raised its forecast for Australian iron ore exports this year to 762 million tons from a previous estimate of 748 million tons as the Rinehart-backed mine starts shipments later this year. Exports may rise to 824 million tons next year and reach 928 million tons in 2020.
Roy Hill’s the largest source of incremental iron ore supply and its expansion toward annual output of 55 million tons will probably have a large impact on prices, Citigroup Inc. said in a report on Monday, describing the mine as an “impending whale”. New supply from Roy Hill will contribute to a slump below $40 next year, the bank predicts.
Source: Bloomberg
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