A Rusty Outlook for Iron-Ore Prices – by Rhiannon Hoyle (Wall Street Journal – January 8, 2014)

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Slowing Growth in China and the Opening of New Mines in Australia Threaten to Drag Down Prices

SYDNEY—Iron ore may have outperformed other commodities last year, but the price of the metal used to make steel looks set to decline this year as China’s growth slows.

China’s continued heavy spending on subways, bridges and other infrastructure kept demand for iron ore high last year. Exports to China from Port Hedland, Australia’s main shipment point for the metal, increased by 34% to 256 million metric tons. Overall shipments of iron ore—including to Japan and South Korea—rose 26% to 318 million tons. Exports of the commodity reached record levels in December.

Many analysts and traders have been surprised by the way iron-ore prices, buoyed by record Chinese demand, held up throughout 2013. Prices of other industrial commodities, such as nickel and coal, have tumbled, but iron ore has largely remained above US$130 a ton.

Although prices are still about a third lower than their all-time peak three years ago, they remain well above the sub-US$90-a-ton level they sank to in 2012 as China’s economy stuttered.

“Steel distributors were expecting a pullback in iron-ore prices in the fourth quarter of 2013 as all the capacity ramp-up [occurred] in Australia,” analysts at Barclays BARC.LN +0.98% wrote in a note. “However, iron-ore prices remained strong” due to stronger-than-expected steel output, they said.

But a less bright outlook for China’s economy this year, coupled with new iron-ore mines coming on line in Australia, is threatening to drag down prices this year. A decline would damp the outlook for companies like BHP Billiton BHP -0.57% and Rio Tinto, RIO -0.29% as well as other producers world-wide.

“We have our doubts that iron ore and steel prices could sustain themselves at current levels,” said Spencer Johnson, a New York-based risk manager at financial-services firm INTL FCStone.

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