Iron Ore Price Crash Looms, Signalling An End To The Commodities Super Cycle – by Tim Treadgold (Forbes – March 13, 2013)

Three of the world’s biggest mining companies are heading for a rough ride over the next few years as the once heavily-promoted commodities super-cycle enters its end game. The price of iron ore is tipped to be the next mineral to suffer a sharp price correction as demand for steel in China dries up.

The glut of iron ore developing in the international market is good news for steel consumers such as car makers and builders but will hit the profits of BHP Billiton, Rio Tinto and Vale, the big three of the seaborne iron ore trade.

Between them those three miners account for about 70% of the iron ore imported by China, which has been both a prolific producer and consumer of steel during its hectic construction boom of the past 20 years.

But, over the past few days a string of gloomy steel production and iron ore price forecasts has trimmed the share prices of all iron ore miners with the potential for worse to come if the price projections are accurate. This seems likely given recent falls in the prices of other industrial minerals, including copper, nickel and zinc.

Rio Tinto, the London-based miner with its best assets in Australia, will be hit hardest by the prospect of the iron ore price falling by up to 50% if gloomy economists outside the industry are right, or a slightly less damaging 33% if one of Rio Tinto’s own senior staff is correctly reading his crystal ball.

Vivek Tulpule, Rio Tinto’s chief economist, raised eyebrows in Australia last week when he told a meeting of investment analysts in Sydney that he expected the price of the best quality iron ore to drop from around $150 a ton to $100 a ton over the next 12-to-18 months.

It was a prescient observation because within days the price slipped to $144 a ton, its lowest this year, though still well above the $87 a ton low point last September when the first shudder of a major price correction rumbled through the global iron ore market.

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