Iron Ore to Decline as China Growth Slows, Biggest Shipper Says

Mar 21, 2012 -- Iron ore may decline 8.5 percent this year as global output increases and growth in Asian steel production slows, according to a government forecaster in Australia, the world’s biggest exporter.

Prices may average about $140 a metric ton in 2012 from $153 last year, the Bureau of Resources and Energy Economics said in a report today. Shipments from Australia may climb 12 percent to 493 million tons in 2012, it said.

Steel-production growth in China has slowed as the fastest- growing major economy puts greater focus on consumers rather than building projects, BHP Billiton Ltd. (BHP), the world’s biggest mining company, said yesterday. Shares in Vale SA (VALE3), the largest iron-ore producer, fell the most in a week after BHP’s comments. While China’s near-term growth is slowing, iron-ore output significantly lags consumption, Rio Tinto Group (RIO) said yesterday.

"Over the remainder of 2012, iron-ore prices are forecast to ease as production increases from new projects in Australia and growth in Asian steel production weakens,” the Canberra- based bureau said. “Further price decreases are expected to be limited by an expected reduction in exports from India.”

Shares in Melbourne-based BHP dropped for a second day, losing 1.7 percent to A$34.70 in Sydney. Rio Tinto, the second- largest iron-ore exporter, dropped 0.4 percent to A$65.34. Vale, the biggest shipper, fell 0.8 percent yesterday.

ANZ Forecast

The bureau’s outlook tallies with that from Australia & New Zealand Banking Group Ltd., which forecast in a report yesterday that iron ore may lose 7.5 percent to $147 a ton in 2012 on higher Australian and Brazilian output. Credit Suisse Group AG (CSGN) said on March 15 that prices may gain to as much as $160 this year as higher steel production boosts demand.

Iron-ore exports from Brazil, the second-biggest shipper, may gain 6.4 percent, the bureau said in the report. Shipments from India are set to decline 32 percent to 43 million tons in 2012 amid government restrictions and an export tax, it said.

China’s crude-steel production may advance 7 percent to 731 million tons in 2012 compared with an 8.9 percent gain last year, the bureau said. The nation, the world’s biggest base-metals user which accounts for 45 percent of global steel output, cut its economic annual growth target to 7.5 percent this month.

'Persistent Slowdown’

"Iron-ore prices at current levels aren’t sustainable,” Laura Brooks, a consultant at researcher CRU, said in a presentation at a conference in Perth, Western Australia today. “We expect a persistent slowdown in the foreseeable future.”

Economic growth in China is set to ease from the highs of the last decade, while India will grow strongly from 2015 without reaching the highs seen in China, Brooks said. There is an extensive new pipeline of iron-ore projects that would be gradually realized, she said.

The bureau’s forecasts referred to iron ore with 62 percent content free-on-board Australia. Iron ore of the same grade delivered to the Chinese port of Tianjin was at $144.80 a ton yesterday after gaining 4.5 percent this year, according to data from The Steel Index Ltd. Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin, moisture can represent 8 percent to 10 percent of the weight.