Iron’s 50m extra tons spell weaker price – Liberum

SINGAPORE – The world’s top iron-ore suppliers including Brazil’s Vale will add almost 50-million tons of supply in the 12 months to next June, undermining prices and feeding a global glut, according to Liberum Capital.

Suppliers that also include Australia’s BHP Billiton, Rio Tinto and Gina Rinehart’s Roy Hill operation are set to supply 686-million metric tons in the first half of 2017, from 677.8-million tons this half and 636.3-million tons in the opening six months of 2016, Liberum said in a report.

SUPPLY GROWTH
“Despite the ‘value-over-volume’ mantra being adopted by Rio and Vale, we still expect iron-ore supply growth to accelerate quickly in 2017,” analyst Richard Knights said in a September 20 note. Vale will probably add a net 20-million tons next year as its S11D project comes online, Knights said.

Iron-ore prices have sagged this month, eroding 2016’s advance, amid resurgent concern that supply growth will again swamp the seaborne market even as some miners have said they are now prioritising the value of exports over absolute volumes. While rising seaborne sales into China this year have come as local, higher-cost production has dropped back, there may now be limited room for further increases, according to Knights.

'FREIGHT ADVANTAGE'
“Remaining capacity is likely to be increasingly less price-elastic,” Knights wrote, a phrase that suggests supply from China may respond less over time to changes in price. Many remaining mines in China are located right next to mills, offering them an “insurmountable freight advantage” over overseas rivals, according to Knights.

The raw material with 62% content delivered to Qingdao lost 0.5% to $55.68 a dry ton on Monday, and has dropped 5.6% in September, according to Metal Bulletin. That’s pegged back this year’s gain to 28% from as much as 62% in April.

Liberum’s outlook follows contrasting forecasts from miners such as Vale and banks including Morgan Stanley, Citigroup and Westpac Banking. While Rio de Janiero-based Vale has said it sees iron ore holding above the $50 threshold, Citigroup projected last month that the raw material will average $45 next year.