The surge in output from Australia’s two biggest iron ore producers is slowing as they complete $24 billion in expansions wagered on increasing demand from China’s mills. As steel output declines in China, the next wave of supply from miners who’ve made the same bet is likely to keep prices under pressure.
While Rio Tinto Group and BHP Billiton Ltd., the world’s No. 2 and No. 3 exporters, predict supply growth will slow this year, iron ore’s collapse may not reach its nadir until 2017 as material continues to be added from new operations in Brazil and Australia, according to CRU Group.
The consultancy estimates average benchmark iron ore will remain broadly flat over the next two years at around $40 a metric ton. The steelmaking ingredient trades at less than a quarter of its 2011 peak, and last month touched a new low of $38.30 in daily prices dating to 2009.
China’s steel mills, which account for half of global supply, last year posted their first annual decline in output since at least 1991.
Rio and BHP “are still adding tons to the market, just at a slower pace,” Dang Man, an analyst at Maike Futures Co. in Xi’an, said by phone. “I don’t see that supporting prices especially since demand is very poor.
We think a drop to between $30 and $35 is very likely this year.” Citigroup Inc. said last week it sees a strong possibility of iron ore falling below $30 a ton.
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