![](https://static.businessnews.com.au/sites/all/themes/bn2020/images/squares.gif)
![Miners seek to calm speculation over iron ore outlook as China slows growth](https://static.businessnews.com.au/sites/default/files/fmg_a.jpg)
CHINA’S decision to slow national growth has cast doubt over the strength of the iron ore trade and led to uncertainty about the sector’s outlook, at least in the near term.
Forecasting of iron ore prices for this year and beyond has varied wildly after China cut its growth target to 7.5 per cent, and after a weaker finish to last year for prices of the steel-making material.
BHP Billiton Iron Ore president Ian Ashby, presenting at the Global Iron Ore & Steel Conference in Perth last week, added to the uncertainty when he outlined the company’s belief that demand from China was “flattening”.
Mr Ashby’s claim came on the back of some pessimistic price forecasts by analysts, with Goldman Sachs taking the most downbeat view by predicting iron ore would fall as low as $US77 a tonne from 2016 onward – almost half of what prices were at their peak.
Analysis from British-based investment bank Fairfax was more favourable, yet still cautious, with its long-term outlook giving iron ore a $US90/t valuation.
Fairfax was more generous in its estimations for the coming years, saying iron ore would average $125/t in 2012, $120/t in the next two years and $115/t by 2015.
“We expect iron ore prices to be finely balanced in 2012 against a weaker demand outlook,” Fairfax said.
Research group Morningstar said Mr Ashby had briefly spooked the markets with his claim on iron ore demand in China.
Mr Ashby said BHP believed that seaborne demand would grow by 4.4 per cent this decade compared with 8.4 per cent growth between 2000-2010.
Morningstar said growth of 4.4 per cent meant the same level of seaborne capacity would be required over the 10-year period as the previous decade.
“Sounds to us like a pretty decent environment for the likes of BHP and Rio,” Morningstar said in a note.
“BHP grew Pilbara iron ore output almost 200 per cent last decade with more to come. Just maintaining that level of output would be satisfying, let alone increasing it 50 per cent again.”
Moody’s Investor Service believes the additional capacity coming on-stream over the next couple of years will dampen prices and limit the return to producers.
Analyst Andrew Metcalf said strong growth in steel production over the past three years – driven chiefly by China – stimulated demand for iron ore.
“However, with capacity expected to increase over the next two years by more than 450 million tonnes per annum – or 260mt/year on a 62 per cent Fe equivalent basis – we expect supply constraints to ease, leading to lower prices,” Mr Metcalf said.
Moody’s has predicted the iron ore divisions of mining giants BHP Billiton and Rio Tinto to continue to perform strongly, albeit not with the spectacular performance achieved in the past two years.
Australia’s Bureau of Resources and Energy Economics (BREE) believes iron ore prices could fall by 8.5 per cent this year as steel production in Asia slows and global production rises.
BREE has predicted prices to average about $US140/t in 2012, while also forecasting that shipments from Australia will increase by about 12 per cent to 493mt.
“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,” BREE said in a report.
“Further price decreases are expected to be limited by an expected reduction in exports from India.”
In response, miners have moved to calm the situation by downplaying the significant falls predicted by analysts.
Fortescue Metals Group chief executive officer Nev Power dismissed talk of iron ore prices falling as low as $77/t, saying there was still very good strength in the market.
“The marginal cost of production from the most expensive producers is putting a floor under the iron ore price of around $140 to $145/t,” Mr Power said in a conference call this month.
“This is because to meet demand for iron ore the supply had to come from high-cost, typically domestic magnetite mines – that is putting a significant floor under the iron ore price.”
Mr Power added that a company like Fortescue would have some protection from closing margins if iron ore prices were to significantly drop.
“If there is a significant reduction in the iron ore price led by any reduction in financial certainty in global terms then it is likely our costs will go down due to a lower Australian dollar and oil price,” he said.
“We’re not forecasting an iron ore price below $US120/t in the short term, we think it will trade in the $US120 to $US150 range.”
Mining giants Rio Tinto and BHP believe ongoing demand strength for iron ore should keep prices ‘healthy’.
Rio Tinto says an additional 100mt/year of extra supply would be required over the next seven years from emerging economies.
Rio Tinto managing director of expansion projects, David Joyce, told the Global Iron Ore & Steel conference the company expected to claim at least 25 per cent of that required supply.
Mr Ashby offset the company’s prediction of slower demand growth by saying the iron ore price had a floor of about $US120/t, but did not give specifics about the company’s long-term forecast.
Deloitte national mining leader Tim Richards backed the sentiment of the major miners that demand would remain strong, until at least 2020.
However, he said beyond then was tougher to predict given the supply coming on-line from current expansion plans and uncertainty surrounding China’s long-term intentions.
“From conversations I’ve had with people in China I do see a bit of a watershed in 2020 as to what it looks like after that – by that time we will have a reasonably substantial supply in the market,” Mr Richards told WA Business News.
“But China has a well-orchestrated plan they want to execute against, therefore I see demand pulling through until at least 2020.”
Intierra Resource Intelligence’s long-term view is that demand for the steel-making material will stay on the rise, led by China and India.
Intierra has forecast global iron ore demand to double to around 3.5 billion tonnes a year as Chinese appetite continues to drive the market, albeit at a slower pace than during the past decade.
The industry researcher said analysis by its Raw Materials Group division revealed “interesting developments” for the iron ore market.
“The Chinese, for example, continue to face hurdles in their quest to gain control of 50 per cent of imports, with foreign direct investments in Africa and elsewhere proving more difficult than anticipated,” Intierra said.