Iron Ore Seen Below $40 by Citi as Roy Hill `Whale’ Starts – by Jasmine Ng (Bloomberg News – September 28, 2015)

New supply from Gina Rinehart’s Roy Hill iron ore mine will contribute to a slump below $40 a metric ton next year, according to Citigroup Inc., which said lower steel output in China would also hurt the commodity.

The project in Australia’s ore-rich Pilbara is poised to start shipments in October, and its expansion toward annual output of 55 million tons will probably have a large impact on prices, analysts including Ivan Szpakowski said in a report. Surging production will combine with steel-output cuts in China to push prices below $40 in the first half, Citigroup said.

Iron ore’s retreated 20 percent this year on rising low-cost output and faltering demand growth in China, and the addition of the new cargoes from Roy Hill to the global seaborne market may add to oversupply.

Roy Hill Holdings Pty Ltd. Chief Executive Officer Barry Fitzgerald told reporters in China last week the project is on target to achieve full capacity over 15 months. Citigroup described the new mine in the report on Monday as an “impending whale” that would ship almost all of its output to China.

“A more significant shakeout is likely in the first half of 2016 as Chinese mills reduce output while supply continues to build,” said Szpakowski, who has forecast a drop to below $40 a ton since at least July. “The largest source of incremental supply is coming from Roy Hill.”

Larger Impact

Output from Roy Hill will probably have a larger impact on benchmarks than new Brazilian supply as its ore will be similar to Rio Tinto Group’s Pilbara Blend fines, closely matching the main index terms, according to Szpakowski.

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