China prospects forged in steel – by Barry Fitzgerald (The Australian – May 31, 2014)

MINERS, commodity experts and China watchers believe this year’s dramatic fall in iron ore is a short-term issue, suggesting that the price of Australia’s biggest export earner will rally to around $US110 a tonne in response to China’s ¬urbanisation and industrialisation demand imperative.

A procession of speakers at the Australia in China’s Century Conference in Melbourne yesterday cautioned against reading too much into the near 30 per cent decline in iron ore prices so far this year to $US95.70 a tonne — a price at which Australia’s highest-cost producers will be feeling the pinch.

They cited a combination of reasons for their faith in the ability of iron ore prices to rebound to around $US110 a tonne. While that would represent a 15 per cent improvement on the current price, it would nevertheless still be 18 per cent below the full-year average in 2013, which matched the year-end price of $US135 a tonne.

Fortescue chairman and major shareholder Andrew Forrest told the conference that Chinese steel production was continuing to run at record levels despite patchy economic indicators.

“The Chinese ability to manage poverty out of its country is unprecedented and their consumption of steel is still running at record rates,” Mr Forrest said.

He said betting against China’s growth story was the “only guarantee of a loss I have seen in a long time’’.

“I’m pretty comfortable with the iron ore price oscillating around the $US110 (a tonne) mark,” Mr Forrest told the conference.

“It could wander down to $US80, it could wander up to $US140.”

He said it was a case of “thank god we have China’’.

“You have a situation where they’re trying to urbanise an Australia every year,’’ he said.

The slide in the prices comes as Australia has ramped up supply, including that from Fortescue’s Pilbara operations.

Ryan Stokes, chief operating officer of Seven Group Holdings — the owner of mining equipment supplier WesTrac — told the conference that Chinese demand for Australian iron ore had grown exponentially.

“China imported 440 million tonnes from Australia last year, up more than tenfold since 2001. Its total iron ore imports are expected to rise from about 820 million ¬tonnes last year to 1.25 billion ¬tonnes by 2020,’’ he said.

Mr Stokes, who is also a director of iron ore developer Iron Ore Holdings, said that as a result, the price of the steelmaking raw ¬material would be a “major driver’’ for the Australian economy. But the “really import driver’’, he said, was the volume of iron ore being mined and shipped overseas, reflecting the shift from the price-led resources boom to a production-led boom.

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