Weakness in iron ore price to persist for a prolonged period, says analysts

Author: Paul Ploumis07 May 2015 Last updated at 03:49:44 GMT

CANTERBURY (Scrap Monster): The research report published by analysts at Investec- London-based specialist banking and asset management group states that iron ore prices are likely to trend lower on fears of increased supply of the raw material into international market. The commissioning of new capacities and resumption of activities in Indian mines may send more iron ore to market, which in turn may lead to decline in prices.

The Indian government recently lowered the export duty on lower-grade ores from 30% to 10%. This is expected to boost the iron ore shipments out of the country in a significant way. The exports of iron ore grading 58% Fe and below are likely to jump higher. The move is feared to add at least 10 million mt of iron ore from stockpiles into seaborne market. The oversupply situation may drag the iron ore prices further lower, noted Investec.

On the other hand, industry experts believe that the outbound shipments are unlikely to see a sudden revival as low iron ore prices still make the exports unattractive.

Incidentally, provincial government in Canada has announced all possible support including infrastructure funding in an attempt to find an operator to resume the Bloom Lake mine previously held by Cliffs Natural Resources. According to Investec, resumption of operations at such high cost mines may push iron ore prices to a multi-year long depression. Ideally, more capacities have to close permanently, in order to strike a better balance between demand and supply.

Also, Vedanta Group’s Sesa Sterlite, which has recently obtained mining permissions in the Indian state of Goa is planning to resume iron ore exports after monsoon season.

Overall, expansion of production capacities and contraction in demand is expected to keep the iron ore prices under pressure for a sustained period, stated Investec analysts.