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Iron-ore doomed to 2015 price doldrums, Indaba hears

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    Iron-ore doomed to 2015 price doldrums, Indaba hears

    9th February 2015 By: Martin Creamer

    CAPE TOWN (miningweekly) – The iron-ore market will remain oversupplied in 2015 and iron-ore will sell in the low $70/t price range this year, which has begun even worse than 2014, Wood Mackenzie principal metals and mining consultant Roger Emslie told the Mining Indaba on Monday.

    Emslie, who sketched how iron-ore had last month hit its lowest level since May 2009, outlined how the metal had slumped to $62/t by the end of January, resulting in a $67/t monthly average.

    He said that if the price remained in the $60/t range, more asset write-downs were a near certainty and more midtier mine closures likely.

    There was only so far that cost cutting could go before difficult decisions would have to be made on the long-term viability of mines in a structurally oversupplied market.

    "It’s hard to believe, but 2015 has started even worse than 2014 finished,” he commented at the conference that is teeming with 7 000 mining professionals.

    China’s import bill for iron-ore fell 16% to $95-billion last year, well down from its 2011 peak of $112-billion, when prices averaged a high $168/t.

    Slower demand was poised to keep prices down for longer against the background of last year’s global iron-ore production totalling 2201-million tonnes, global imports totalling 1404-million tonnes and Chinese imports totalling 930-million tonnes.

    A short-term upward price adjustment remained unlikely because of the recent cutting back of Chinese steel production and the upcoming of China’s Lunar New Year holidays.

    Creating still more price slackness was the high level of inventory at Chinese mines.

    Outside of China, seasonal and structural conditions were creating a similarly bleak picture.

    Other than the Middle East and India, none of the major iron-ore importers had shown any meaningful improvement in demand.

    Chinese mills should start re-stocking after the Lunar New Year, when slightly tighter seaborne supply could be anticipated.

    The cause of the low prices was the surging ahead of 140-million additional tonnes by Australian producers in 2014, based on investment decisions made several years ago when prices were higher and the long-term view was more bullish.

    As supply ramped up in 2014, Chinese steel demand did the unthinkable and contracted for the year creating a clear disconnect between supply and demand and marking a decisive turning point for iron-ore, Emslie explained.

    In volume not value terms, Chinese imports last year ironically finished at a December record 86.9-million tonnes.
    However, value of Chinese imports for the year was well down, despite the volume rising by more than 100-million tonnes.

    The gap between the Australian iron-ore mining majors and the rest of the supply chain is widening, with fourth-quarter production from Rio Tinto, BHP Billiton and Fortescue confirming that their expansions were paving the way for even higher supply in 2015/16.

    The oversupply from Rio Tinto and BHP Billiton had come at the expense of higher cost midtier suppliers, which were scaling back investment and cutting production in response to compressed margins.
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