Iron ore price: High cost miners face bloodbath

End of the road for iron ore rally

The import price of 62% Fe content ore at the port of Tianjin had another down day on Tuesday to trade at $56.20 per dry metric tonne according to data supplied by The Steel Index. The steelmaking raw material is still up more than 50% from near decade lows struck in December.

The global surplus will probably start to shrink after 2018

While demand has held up well, a growing supply glut raises fears of further declines in the price of the steelmaking raw material with a new report by analysts at Citi quoted by Bloomberg predicting low cost producers will add 200 million tonnes to the seaborne market through 2020:

“Shipments from Brazil will expand to 480 million tons in 2020 from 371 million this year, while Australian cargoes rise to 934 million tons from 835 million, the bank said in a report. That’ll lift the surplus to 56 million tons in 2018 from 20 million this year, before price-induced curtailments help bring the global market back toward a balance, Citigroup estimates.

“The global surplus will probably start to shrink after 2018, dropping from 56 million that year to just 8 million tons in 2019, the bank forecast. It estimated price-induced curtailments would be about 150 million tons in 2018 and more than twice that figure in 2020.”

There’s no shortage of big projects in the pipeline: the Roy Hill mine owned by Gina Rinehart’s ramp-up to 55 million tonnes per year should happen early next year, Rio Tinto’s Silvergrass received board approval last month, Fortescue has been hitting and exceeding targets, while BHP Billiton’s South Flank can be turned on if the world’s number three iron ore miner sees it’s losing market share.

Recently top producer Vale made a move to ease some of the pressure, announcing that it will limit and delay tonnage from its $17 billion Carajas Serra Sul mine expansion and railway project in northeastern Brazil. Capacity is 90 million tonnes a year and first ore is expected January, but the Rio de Janeiro-based company is taking a cautious approach, favouring margins over volume.

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