Author: Paul Ploumis17 Jun 2014 Last updated at 05:39:54 GMT
BEIJING (Scrap Monster): Iron ore production in China, the world’s largest consumer of main ingredient of steel making will attain a peak level this year due to the opening of bigger mines. This made a global glut, which is depressing the iron ore prices.
Shi Zhenglei, Shanghai-based analyst with Mysteel.com, largest industry consultancy in China said that the output of low grade, unprocessed iron ore might surge 5.6% to1.52 million tonnes this year and that is around 400 million tonnes of seaborne equivalents.
He said that the potential extra iron ore production from china comes even if it entered into a bearish market in the month of March and the prices dropped down below $90 during Monday for the first time since 2012, because the major miners Rio Tinto and BHP Billiton increased production. He added that the increase in iron ore production in China would impact on prices and enhance the steel mills’ bargaining power over imports.
Generally, larger mines are owned by steel producers and hence the production is done according to their requirement. Even though the condition money losing at present prices, miners have to open new mines in order to attain cash flow as they have invest a lot of the mine construction. Based on the reports given by the Steel Index Ltd, the iron ore which have 63 percent content delivered to Tianjin port decreased 2.1% to $89 per dry ton, for the first time since 2012.
Mysteel’s Shi said that the production of unprocessed iron ore in China was about 1.44 million tonnes last year, which is about 380 million tons of seaborne equivalents. He said that the Chinese raw iron ore contains an average iron content of about 26 percent, while comparing with the global benchmark of 62 percent iron. Typically, Chinese iron ore have half or less of the iron content in the iron ore of Australia, the top shipper in the world.
Steel and iron ore markets analyst at Wood Mackenzie Ltd, Paul Gray said that the oversupply of iron ore would last until the year 2020. He forecasts that the average iron ore prices will be $101 per ton in the second half of this year and $98 per ton in 2015. Last week Morgan Stanley deducted its estimate for the prices to about $105 per ton this earlier, earlier it was about $118 in May. They said that the prices night average around $90 per tonne in 2015, which was 21 percent decrease from the earlier estimation.
According to Goldman Sachs Group Inc. and Australia and New Zealand Banking Group Ltd, the Chinese producers face an increasing challenge of cheaper supplies from Brazil and Australia, which leads to a global glut and depressed prices. Wood Mackenzie said that Australia’s share of Chinese iron ore imports were forecast to raise to above 60 percent by the year 2020