Vaman Kumar, an industry expert
associated with Nordbell Commercial Limited elaborates upon the impact of the
proposed increase in production of iron ore by Australian mining majors.
Last week
the Bureau of Resources and Energy Economics (BREE) in Australia slashed iron
price forecasts for 2014 last month. Moreover, a further drop is also predicted
in 2015 when mining companies like BHP Billiton Ltd and Rio Tinto Group
increase their output as has been announced.
As a
result of the price slash, the average contract price for Free On Board (FOB)
Australia iron ore is set to decline from its previous forecast of $119 per ton
to $110 per ton (a 7.5% reduction). BREE forecasts that iron ore exports would drop
3% to 631m tons as opposed to its previous forecast of 650 m in December.
According to the industry expert Vaman Kumar “The prices of iron ore are in the
retracement period from its high.”
In another
significant development, producers of iron ore in Australia – Fortescue Metals,
BHP Billiton and Rio Tinto are increasing shipments to China. According to
Vaman Kumar “Shipments to China are likely to top half a billion tons. It is
very likely that global supply will outpace global demand”.
Iron ore
output of Rio Tinto alone is scheduled to reach a capacity level of 290 million
tons a year before June 2014. Following the same trend, Fortescue
is targeting a 155-million-tons-per-year run rate over the next month as
against the 100 million tons one year ago.
Due to the increased availability of supplies from
mines starting up in Australia in 2014, iron ore prices are not expected to
recover to the high levels witnessed in 2013. However, the FOB Australia spot
price is predicted to be an average of $110 per ton for the full year. Also,
BREE is apprehensive of persistent downward pressure on the price of iron ore
over the next few years, as new mines continue to come up. The body projected
an average spot price of iron ore in 2015 to be around $103 per ton and also
envisages the possibility that new capacity could see the iron ore price drop
to $87 per ton by 2019.
About Vaman Kumar
Vaman Kumar, is an industry expert in the
field of international trade and global commodity trade especially in the field
of iron ore trading. Vaman Kumar has been associated with Nordbell Commercial
Limited and his interests include Metals, Minerals and Energy in Commodity
Trading, International trade, Banking, Finance and Credit and Risk Management.
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