Tags: iron | ore | China | Goldman Sachs

Iron Ore Glut Hurting China Mines as Supply Builds, Goldman Says

Friday, 24 Oct 2014 09:59 AM

Iron ore production in China has probably been contracting since April and further mine shutdowns in the largest importer are forecast as a global seaborne glut expands, according to Goldman Sachs Group Inc.

Monthly output from mines in the country may have dropped about 20 percent from a year earlier, analysts Christian Lelong and Amber Cai wrote in an e-mailed report, citing an implied figure from the bank’s in-house analysis. That estimate may overstate the actual drop, Lelong and Cai added.

Iron ore tumbled 40 percent this year after companies including Rio Tinto Group and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut just as economic growth in China slowed. The global market is in the midst of a transition without precedent in recent commodity history as supply surges and some higher-cost mines are displaced, according to Macquarie Group Ltd.

“The supply adjustment to a low-price environment continues; in particular, production in China has contracting even though domestic miners have not been fully exposed to $80 a ton seaborne iron ore yet,” Lelong and Cai said. “We expect further pressure on Chinese production.”

Ore with 62 percent content delivered to Qingdao slid 1.9 percent to $80.29 a ton yesterday, the lowest level since Oct. 10, according to data from Metal Bulletin Ltd. The price fell to $77.97 on Sept. 29, the lowest since September 2009.

Expanding Glut

The market needs to absorb a surplus of about 110 million tons next year, almost double the estimated 60 million ton surplus in 2014, Lelong and Cai wrote in the report, which was dated Oct. 23. Seaborne prices may average $80 a ton next year, they said, maintaining their price outlook.

Global seaborne output will exceed demand by 26 million tons this year and 41 million tons in 2015, UBS AG said in an Oct. 15 report. If high-cost supply doesn’t leave the market, prices may drop toward $55 a ton, according to Morgan Stanley, which predicts the raw material will average $87 next year.

Vale, the world’s largest producer, posted record quarterly output as new projects started, according to a statement yesterday. The Rio de Janeiro-based company is set to produce as much as 330 million tons this year, above its target, according to Quantitas Asset Management.

Iron ore demand is outstripping supply, Fortescue Metals Group Ltd. Chief Executive Officer Nev Power said last week, citing declining stockpiles in China. The fundamentals in the industry are very strong, Rio Chief Executive Officer Sam Walsh told reporters in Sydney on Oct. 15.

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Iron ore production in China has probably been contracting since April and further mine shutdowns in the largest importer are forecast as a global seaborne glut expands, according to Goldman Sachs Group.
iron, ore, China, Goldman Sachs
424
2014-59-24
Friday, 24 Oct 2014 09:59 AM
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